Asset Purchase and Sale Agreement - Potomac Electric Power Co. and Southern Energy Inc.


                        ASSET PURCHASE AND SALE AGREEMENT

                                       FOR
                      GENERATING PLANTS AND RELATED ASSETS


                                 By and Between

                         POTOMAC ELECTRIC POWER COMPANY

                                       and

                              SOUTHERN ENERGY, INC.





                            Dated as of June 7, 2000
   2

                                           

                        TABLE OF CONTENTS

                                                          Page
                                                       
ARTICLE I - Definitions                                      1
      Section 1.1  Definitions                               1
      Section 1.2  Accounting Terms                          1
ARTICLE II -  Purchase and Sale; Assumption of Certain
              Liabilities                                    1
      Section 2.1  Purchase and Sale                         1
      Section 2.2  Auctioned Assets and Retained Assets      2
      Section 2.3  Assumed Obligations and Retained
                   Liabilities                               6
      Section 2.4  Third Party Consents                      11
ARTICLE III - Purchase Price                                 11
      Section 3.1  Purchase Price                            11
      Section 3.2  Certain Post-Closing Adjustments          12
      Section 3.3  Allocation of Purchase Price              13
      Section 3.4  PPA-Related Purchase Price Adjustments    14
ARTICLE IV - The Closing                                     15
      Section 4.1  Time and Place of Closing                 15
      Section 4.2  Payment of Estimated Purchase Price       16
ARTICLE V - Representations and Warranties of Seller         16
      Section 5.1  Organization; Qualification               17
      Section 5.2  Authority Relative to This Agreement      17
      Section 5.3  Consents and Approvals; No Violation      17
      Section 5.4  Personal Property                         18
      Section 5.5  Real Estate                               18
      Section 5.6  Leases                                    18
      Section 5.7  Certain Contracts and Arrangements        18
      Section 5.8  Legal Proceedings                         18
      Section 5.9  Permits; Compliance with Law              19
      Section 5.10 Environmental Matters                     19
      Section 5.11 Labor Matters                             20
      Section 5.12 ERISA; Benefit Plans                      20
      Section 5.13 Taxes                                     21
      Section 5.14 Undisclosed Liabilities                   21
      Section 5.15 Brokers                                   22
      Section 5.16 Insurance                                 22
      Section 5.17 Disclaimers                               22
ARTICLE VI - Representations and Warranties of Buyer         23
      Section 6.1  Organization                              23
      Section 6.2  Authority Relative to This Agreement      23
      Section 6.3  Consents and Approvals; No Violation      23
      Section 6.4  Availability of Funds                     24
3 Section 6.5 Brokers 24 Section 6.6 No Knowledge of Seller's Breach 24 Section 6.7 Qualified Buyer 25 Section 6.8 WARN Act 25 Section 6.9 Financial Representations 25 Section 6.10 Legal Proceedings 25 ARTICLE VII - Covenants of the Parties 25 Section 7.1 Conduct of Business Relating to the Auctioned Assets 25 Section 7.2 Access to Information 28 Section 7.3 Consents and Approvals; Transferable Permits 29 Section 7.4 Further Assurances 30 Section 7.5 Public Statements 31 Section 7.6 Tax Matters 31 Section 7.7 Bulk Sales or Transfer Laws 31 Section 7.8 Witness Services 31 Section 7.9 Control of Litigation 32 Section 7.10 Confidentiality 32 Section 7.11 Risk of Loss 32 Section 7.12 Tax Exempt Financing 33 Section 7.13 Compliance with Governmental Agreements 36 Section 7.14 PJM; MAAC 36 Section 7.15 Trade Names 36 Section 7.16 Enforcement of Retained Rights 37 Section 7.17 Conduct of Business Relating to PPAs 37 ARTICLE VIII - Conditions 37 Section 8.1 Conditions Precedent to Each Party's Obligation To Effect the Purchase and Sale 37 Section 8.2 Conditions Precedent to Obligation of Buyer To Effect the Purchase and Sale 38 Section 8.3 Conditions Precedent to Obligation of Seller To Effect the Purchase and Sale 39 ARTICLE IX - Employee Matters 41 Section 9.1 Employee Matters 41 Section 9.2 Pension Plans 43 Section 9.3 Buyer's Savings Plan 43 Section 9.4 Severance Liabilities 45 Section 9.5 COBRA 45 Section 9.6 WARN Act 45 ARTICLE X - Indemnification and Dispute Resolution 46 Section 10.1 Indemnification 46 Section 10.2 Third Party Claims Procedures 48 ARTICLE XI - Termination 50 Section 11.1 Termination 50 ARTICLE XII - Miscellaneous Provisions 50 Section 12.1 Expenses 50
4 Section 12.2 Amendment and Modification; Extension; Waiver 51 Section 12.3 No Survival of Representations or Warranties 51 Section 12.4 Notices 51 Section 12.5 Assignment; No Third Party Beneficiaries 52 Section 12.6 Governing Law 53 Section 12.7 Counterparts 53 Section 12.8 Interpretation 53 Section 12.9 Jurisdiction and Enforcement 54 Section 12.10 Entire Agreement 55 Section 12.11 Severability 55 Section 12.12 Conflicts 55
5 SCHEDULES AND EXHIBITS
Schedules Title ========= ====== Schedule 1.1(a) Definitions Schedule 1.1(c) Seller's Severance Plans Schedule 2.2(a)(ii) Spare Parts Schedule 2.2(a)(iii) Personal Property Schedule 2.2(a)(iv) Assigned Contracts Schedule 2.2(a)(v) Transferable Permits Schedule 2.2(a)(vi) Transferred SO2 Allowances Schedule 2.2(a)(vii) Transferred NOx Allowances Schedule 2.2(b)(i) Retained Transmission and Distribution Facilities Schedule 2.2(b)(ii)(B) Communications Equipment/Related Support Equipment Schedule 2.3(a)(iv) Assumed Consent Order Obligations Schedule 2.4 Retained Rights/Unassigned PPAs Schedule 5.3(a) Contracts Approvals; No Violation Schedule 5.3(b) Seller Required Regulatory Approvals Schedule 5.5(a) Real Estate Legal Description Schedule 5.5(b) Title Surveys Schedule 5.7 Material Contract Defaults Schedule 5.8 Legal Proceedings Schedule 5.9 Permits Schedule 5.10(a) Environmental Matters Schedule 5.10(b) Environmental Notification Schedule 5.10(c) Environmental Reports Schedule 5.12 Benefit Plans Schedule 6.3(b) Buyer Required Regulatory Approvals Schedule 7.1(b)(viii) Capital Expenditures Schedule 7.12 Exempt Facilities/Revenue Bonds
Exhibits Title ======== ===== Exhibit A Assignment and Assumption Agreement Exhibit B Bill of Sale Exhibit C-1, C-2, C-3 and C-4 Easements Agreements Exhibit D Guarantee Agreement Exhibit E-1, E-2, E-3 and E-4 Interconnection Agreements Exhibit F Local Area Support Agreement Exhibit G Operating Agreement Exhibit H Potomac River Lease Exhibit I-1 and I-2 Transition Power Agreements Exhibit J Deeds of Conveyance Exhibit K Opinion of Seller's Counsel Exhibit L Opinion of Buyer's Counsel Exhibit M Opinion of Guarantor's Counsel
6 ASSET PURCHASE AND SALE AGREEMENT (including the Schedules hereto, this "Agreement"), dated as of June 7, 2000, by and between POTOMAC ELECTRIC POWER COMPANY, a District of Columbia and Virginia corporation ("Seller"), and SOUTHERN ENERGY, INC., a Delaware corporation ("Buyer," collectively with Seller, the "Parties"). WHEREAS, Seller owns certain power generating facilities (described herein as the "Generating Facilities") and other assets associated therewith; and WHEREAS, Buyer desires to purchase and assume, and Seller desires to sell and assign, the Auctioned Assets (as defined in Section 2.2 below) and certain associated liabilities, upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements hereinafter set forth, and intending to be legally bound hereby, the Parties agree as follows: ARTICLE I Definitions SECTION 1.1 Definitions. Any capitalized terms which are used but not defined in this Agreement shall have the meaning given to such terms in the attached Schedule 1.1. SECTION 1.2 Accounting Terms. Any accounting terms used in this Agreement or the Ancillary Agreements shall, unless otherwise specifically provided, have the meanings customarily given them in accordance with United States generally accepted accounting principles ("GAAP") and all financial computations hereunder or thereunder shall, unless otherwise specifically provided, be computed in accordance with GAAP consistently applied. ARTICLE II Purchase and Sale; Assumption of Certain Liabilities SECTION 2.1 Purchase and Sale. Upon the terms and subject to the satisfaction of the conditions contained in this Agreement, at the Closing, Seller agrees to sell, assign, convey, transfer and deliver to Buyer (or Buyer's permitted assignees pursuant to Section 12.5(a)), and Buyer agrees to purchase and acquire from Seller (or shall cause Buyer's permitted assignees pursuant to Section 12.5(a) to purchase and acquire from Seller) all of the Auctioned Assets. In the case of any Auctioned Assets 7 not located at the Generating Facilities (including supplies, materials and spare parts inventory), Buyer agrees that from and after the Closing, Buyer will bear all risk of casualty or loss with regard to such Auctioned Assets (regardless of whether they remain on Seller's Real Estate or otherwise in Seller's possession). SECTION 2.2 Auctioned Assets and Retained Assets. (a) Auctioned Assets. The term "Auctioned Assets" means all of the assets, real and personal property, goodwill and rights of Seller of whatever kind and nature, whether tangible or intangible, in each case, primarily relating to the power generation operations of the Generating Facilities and the Support Operations, other than the Retained Assets, including the following: (i) except with respect to the Potomac River Real Property, all real property and leaseholds and other interests in real property of Seller, together with all buildings, improvements, structures and fixtures thereon, including the Chalk Point/Morgantown Fuel Pipeline, the Ryceville Pumping Station, the Production Service Center, and the Ash Storage Sites, subject to any Permitted Exceptions (the "Buyer Real Estate"); (ii) all inventories of fuels, supplies, materials and spare parts, together with and subject to (A) all Permitted Exceptions, and (B) all warranties against manufacturers and vendors relating thereto, including the spare parts listed on Schedule 2.2(a)(ii), in each case, other than assets that become obsolete or that are used, consumed, replaced or disposed of in the ordinary course of business consistent with past practice or as permitted by this Agreement; (iii) the machinery, equipment (including any Revenue Meters), facilities, furniture and other tangible personal property on the Buyer Real Estate or the Potomac River Station Site, including any items of personal property located on the Buyer Real Estate, the Potomac River Station Site or temporarily removed from the Buyer Real Estate or the Potomac River Station Site for repairs, servicing or maintenance and listed on Schedule 2.2(a)(iii), together with and subject to (A) any Permitted Exceptions, and (B) all warranties against manufacturers or vendors relating thereto, in each case, 8 other than assets that become obsolete or that are used, consumed, replaced or disposed of in the ordinary course of business consistent with past practice or as permitted by this Agreement; (iv) subject to Sections 2.2(b)(xi) and 2.4, all right, title and interest of Seller in, to and under all contracts, agreements, personal property leases (whether Seller is lessor or lessee thereunder), commitments and all other legally binding arrangements (including any rights of Seller under any PPA to sell energy to any third party power supplier) whether oral or written, which are (A) set forth on Schedule 2.2(a)(iv), (B) not material to the ownership and operation of the Generating Facilities, or (C) otherwise entered into by Seller in accordance with Section 7.1 (collectively, the "Contracts"), in each case, to the extent in full force and effect on the Closing Date; (v) the Permits and Environmental Permits that are transferred or transferable by Seller to Buyer (collectively, the "Transferable Permits"), including the Transferable Permits set forth on Schedule 2.2(a)(v), in each case, to the extent in full force and effect on the Closing Date; (vi) the amount of SO2 Allowances listed on Schedule 2.2(a)(vi) attached hereto ("Transferred SO2 Allowances"); (vii) the amount of NOx Allowances listed on Schedule 2.2(a)(vii) attached hereto ("Transferred NOx Allowances"); (viii) (A) all data, information, books, operating records, operating, safety and maintenance manuals, engineering design plans, blueprints and as-built plans, specifications, procedures, facility compliance plans, environmental procedures and similar records, to the extent in Seller's possession or readily available (collectively, the "Operating Records"), and (B) to the extent permitted by law, all personnel files relating to the Transferred Employees, to the extent in Seller's possession and readily available and to the extent such files pertain to (1) skill and development training and resumes, (2) seniority histories, (3) salary and benefit information, (4) Occupational Safety and Health Act medical reports, (5) active medical restriction forms and (6) any other matters, disclosure 9 of which by Seller to Buyer is permitted under applicable law without the consent of the Transferred Employee, but not including any performance evaluations or disciplinary records (collectively, the "Transferred Employee Records"); provided, however, that Seller shall be permitted to retain copies, or originals to the extent it provides Buyer with copies of same, of all Operating Records and Transferred Employee Records; (ix) (A) except as provided in Section 2.2(b)(iv), the software (provided, however, that Buyer acknowledges that it will require licenses from third parties in order to be legally entitled to use such software), and (B) a non-exclusive, royalty-free license to use solely in connection with the Auctioned Assets the software or other copyrighted material owned by Seller located at Buyer Real Estate; and (x) all claims, causes of action, choses in action, rights of recovery and rights of set-off of any kind in favor of the Seller arising prior to the Closing Date relating to the Auctioned Assets other than those pertaining to the Retained Assets. (b) Retained Assets. The term "Retained Assets" means: (i) the electric transmission and distribution facilities owned, controlled or operated by Seller for purposes of providing point-to-point transmission service, network integration service and distribution service and other related purposes, used in controlling continuity between the Generating Facilities and the transmission and distribution facilities and for other purposes (including the Seller's undivided ownership interest in the Conemaugh Switchyard and the Conemaugh Transmission Line), including those described on Schedule 2.2(b)(i) attached hereto (the "Transmission System"); (ii) (A) except as set forth in Section 2.2(a)(iii), all Interconnection Facilities and other transmission, distribution and substation machinery, equipment and facilities and related support equipment located on Buyer Real Estate or Seller Real Estate or temporarily removed from Buyer Real Estate 10 or Seller Real Estate for repairs, servicing or maintenance; (B) Communications Equipment and related support equipment (1) located on Buyer Real Estate or temporarily removed from Buyer Real Estate for repairs, servicing or maintenance and listed on Schedule 2.2(b)(ii)(B) or acquired by Seller after the date of this Agreement and designated by Seller as a Retained Asset or (2) located on Seller Real Estate or temporarily removed from Seller Real Estate for repairs, servicing or maintenance; and (C) all Protective Relaying Systems not located on Buyer Real Estate; (iii) all cash, cash equivalents, bank deposits and accounts receivable; (iv) (A) all mainframe computer systems of Seller and (B) all software, copyrights, know-how or other proprietary information not primarily relating to the power generation operations of the Generating Facilities, including software, copyrights, know-how or other proprietary information licensed to Buyer pursuant to Section 2.2(a)(ix)(B); (v) the names "Pepco," "Potomac Electric Power Company," and any related or similar trade names, trademarks, service marks or logos (and any rights to and in the same, including any right to use the same); (vi) any refunds or credits related to Taxes attributable to taxable periods (or portions thereof) prior to the Closing Date, and any other rents, charges, liabilities or obligations paid prior to the Closing Date in respect of the Auctioned Assets; (vii) personnel records (other than Transferred Employee Records) and all other records (other than Operating Records); (viii) (A) all Emission Reduction Credits or Greenhouse Gas Emission Reduction Credits that are attributable to any emission reduction activities of the Seller which occur following the Closing Date at any locations, (B) any SO2 Allowances that are not Transferred SO2 Allowances, and 11 (C) any NOx Allowances that are not Transferred NOx Allowances; (ix) the Seller Real Estate (including a fee interest in the Potomac River Real Property); (x) all master station voltage control equipment within and including the master station voltage control cabinets located at the Generating Facilities; (xi) the Retained Rights; (xii) the Conemaugh Interest; (xiii) all claims, causes of action, choses in action, rights of recovery and rights of set-off of any kind in favor of the Seller arising prior to the Closing Date other than those pertaining to the Assumed Obligations; and (xiv) any other asset that is not described with particularity in this Agreement as an Auctioned Asset. SECTION 2.3 Assumed Obligations and Retained Liabilities. (a) Assumed Obligations. At the Closing, Buyer shall assume, and from and after the Closing, shall discharge, all of the liabilities and obligations, direct or indirect, known or unknown, absolute or contingent, which relate to the Auctioned Assets, the Potomac River Station Site or are otherwise specified below, other than the Retained Liabilities (collectively, the "Assumed Obligations"), including the following: (i) except as set forth in Section 2.3(b)(ii), any liabilities and obligations under the Contracts (including any obligations of Seller under any PPA to sell energy to any third party power supplier); (ii) any liabilities and obligations for goods delivered or services rendered on or after the Closing Date relating to the Auctioned Assets; 12 (iii) except as set forth in Section 2.3(b)(iii), (iv) or (v), any Environmental Liability including any Environmental Liability (A) arising out of or in connection with any violation or alleged violation of, or noncompliance or alleged noncompliance with, any Environmental Laws, prior to, on or after the Closing Date, relating to or arising in connection with the Auctioned Assets and the Potomac River Station Site, (B) arising out of or in connection with the condition of any Auctioned Assets and the Potomac River Station Site prior to, on or after the Closing Date, including any actual or alleged presence, Release or threatened Release of any Hazardous Substances at, on, in, under or migrating onto or from, the Auctioned Assets and the Potomac River Station Site, prior to, on or after the Closing Date, (C) arising out of or in connection with any Release or threatened Release of any Hazardous Substance prior to, on or after the Closing Date relating to any equipment, Hazardous Substance, product or recyclable or recycled material (collectively, the "Disposed Items") which remains on or has been removed from the Auctioned Assets and the Potomac River Station Site, (D) in respect of any personal injury or property damage relating to or arising from the presence, exposure to, or proximity to any Hazardous Substance, prior to, on or after the Closing Date, and (E) of any sort whatsoever arising or occurring on or after the Closing Date; (iv) any liabilities and obligations under all consent orders including those listed on Schedule 2.3(a)(iv) (the "Assumed Consent Order Obligations"); (v) except as set forth in Section 2.3(b)(iv), any liabilities and obligations with respect to the Permits to the extent arising or accruing on or after the Closing Date; (vi) (A) all wages, overtime, employment taxes, workers compensation benefits, occupational safety and health liabilities or other similar liabilities and obligations in respect of Transferred Employees arising or accruing on or after the Closing Date, and (B) all other liabilities and obligations with respect to the Transferred Employees for which Buyer is responsible pursuant to Article IX; (vii) (A) any liabilities and obligations in respect of any personal injury or property (real or personal) damage claim (including any claim based on wrongful death) relating to, resulting from, or arising out of the Auctioned Assets and the Potomac River Station Site, arising or occurring on or after the Closing Date, or (B) any liabilities and obligations in respect of any discrimination, wrongful discharge or unfair labor practice claim by any Transferred Employee arising out of or relating to acts or omissions occurring on or after the Closing Date; (viii) any liabilities and obligations, with respect to the periods that include the Closing Date, with respect to real or personal property rent, Taxes based on the ownership or use of property, utilities charges and similar charges that primarily relate to the Generating Facilities (collectively, the "Prorated Items"), including (A) personal property taxes, real estate and occupancy taxes, assessments and other charges, (B) rent and all other items payable by Seller under any Contract, (C) any fees with respect to any Transferable Permit and (D) sewer rents and charges for water, telephone, electricity and other utilities, in each case calculated by multiplying the amount of any such Prorated Item by a fraction the numerator of which is the number of days in such period beginning on and after the Closing Date and the denominator of which is the number of days in such period; (ix) any liabilities and obligations in respect of Taxes (other than as provided for by Section 2.3 (a)(viii)) attributable to the Auctioned Assets arising or accruing during taxable periods (or portions thereof) beginning on or after the Closing Date; (x) any severance costs payable under Seller's Severance Plans with respect to those Non-Union Employees who do not receive a Qualified Offer by the Buyer pursuant to Section 9.1 (such liabilities are the "Closing Severance Expenses"); (xi) any liabilities and obligations of the Buyer relating to the Potomac River Station Site as contemplated by the Potomac River Lease; 13 (xii) all liabilities and obligations of Seller under the loan agreements set forth on Schedule 7.12 attached hereto (the "Loan Agreements") with respect to the Revenue Bonds; and (xiii) any liabilities and obligations under the Ancillary Agreements in respect of the Auctioned Assets arising on or after the Closing Date. (b) Retained Liabilities. Buyer shall not assume or be obligated to pay, perform or otherwise discharge the following liabilities or obligations (the "Retained Liabilities"): (i) any liabilities and obligations of Seller exclusively relating to any Retained Assets (other than as set forth in Section 2.3(a)(xi)); (ii) any liabilities and obligations under the Contracts which relate to (A) goods delivered or services rendered prior to the Closing Date, and (B) breaches by the Seller of its obligations thereunder occurring prior to the Closing Date; (iii) (A) any Environmental Liability of Seller arising out of or in connection with the disposal by, or on behalf of, Seller and Release or threatened Release, prior to the Closing Date of Hazardous Substances at any Off-Site location, (B) any Environmental Liability of Seller arising out of or in connection with any Release or threatened Release of any Hazardous Substance on or after the Closing Date from the Seller Facilities or otherwise originating from, or relating to, any equipment owned or used by Seller that is located on Buyer Real Estate, and (C) any liability in respect of any personal injury claims relating to the exposure of a third party to asbestos at the Auctioned Assets or the Potomac River Station Site which have been filed with any state or federal court having jurisdiction prior to the Closing Date; (iv) notwithstanding the Assumed Obligations set forth in Section 2.3(a)(iii)(A), any monetary fines or penalties (including fines or penalties from violations of any Environmental Law) imposed by a Governmental Authority to the extent arising out of or relating to acts or omissions of Seller 14 in respect of the Auctioned Assets prior to the Closing Date; (v) any Environmental Liability whatsoever arising out of, related to, or otherwise associated with the Release of fuel oil from the Ryceville-Piney Point Pipeline described in Schedule 5.10(a); (vi) (A) all wages, overtime, employment taxes, workers compensation benefits, occupational safety and health liabilities or other similar liabilities and obligations in respect of Transferred Employees to the extent arising or accruing prior to the Closing Date and (B) all other liabilities and obligations with respect to the Transferred Employees for which Seller is responsible pursuant to Article IX; (vii) any liabilities and obligations (A) in respect of any personal injury or property damage claim (other than any Environmental Liabilities which are Assumed Obligations pursuant to Section 2.2(a)(iii) above) relating to the Auctioned Assets arising or occurring prior to the Closing Date, or (B) in respect of any discrimination, wrongful discharge or unfair labor practice claim by any Transferred Employee arising out of or relating to acts or omissions of Seller prior to the Closing Date; (viii) any liabilities and obligations, with respect to periods prior to the Closing Date, for the Prorated Items, calculated as set forth in Section 2.3(a)(viii); (ix) any liabilities and obligations in respect of Taxes (other than as provided for by Section 2.3(b)(viii)) attributable to the Auctioned Assets or trades or businesses associated with the Auctioned Assets arising or accruing during taxable periods (or portions thereof) ending before the Closing Date; and (x) any liabilities and obligations of Seller under the Ancillary Agreements in respect of the Retained Assets. 15 SECTION 2.4 Third Party Consents. (a) Notwithstanding Section 2.2(a)(ii), (iii) or (iv), to the extent that Seller's rights under any Contract or warranty may not be assigned without the consent of another person which consent has not been obtained, this Agreement shall not constitute an agreement to assign the same if an attempted assignment would constitute a breach thereof or be unlawful, and Seller, at its expense, shall use its reasonable best efforts to obtain prior to the Closing any such required consents with respect to any Material Contracts or material warranties. (b) Seller and Buyer agree that if any consent to an assignment of any such Material Contract or material warranty shall not be obtained or if any attempted assignment would in Seller's reasonable opinion be ineffective or would impair any material rights and obligations of Buyer under such Material Contract or material warranty, as applicable, so that Buyer would not in effect acquire the benefit of all such rights and obligations, Seller, to the maximum extent permitted by law and such Material Contract or material warranty, as applicable, shall after the Closing appoint Buyer to be Seller's representative and agent with respect to such Material Contract or material warranty, as applicable, and Seller shall, to the maximum extent permitted by law and such Material Contract or material warranty, as applicable, enter into such reasonable arrangements with Buyer as are necessary to provide Buyer with the benefits and obligations of such Material Contract or material warranty, as applicable. Notwithstanding any of the foregoing, in the event that Seller is unable to obtain a consent from a Power Seller to an assignment of a PPA, such PPA shall be governed by Section II of Schedule 2.4 attached hereto. Seller and Buyer shall cooperate and shall each use their reasonable best efforts after the Closing to obtain an assignment of each such Material Contract or material warranty, as applicable, to Buyer. ARTICLE III Purchase Price SECTION 3.1 Purchase Price. Subject to adjustment pursuant to Sections 3.2 and 3.4, the amount payable by Buyer to Seller for the Auctioned Assets shall be the sum of (a) Two Billion Six Hundred Fifty Million Dollars ($2,650,000,000.00) (the "Purchase Price"), (b) an amount equal to the Final Fuel Related Adjustment Amount, (c) an amount equal to the Final Non-Fuel Related Adjustment Amount, and (d) an amount expended by Seller between the date hereof and the Closing Date for Permitted Capital Expenditures pursuant to Section 7.1(b)(viii). 16 SECTION 3.2 Certain Post-Closing Adjustments. (a) Within 60 Business Days after the last day of the month in which Closing occurs, Seller shall prepare and deliver to Buyer a statement (an "Adjustment Statement") which reflects (i) the book cost, as reflected on the books of Seller as of the Closing Date, of all inventories, materials, spare parts and supplies (excluding any fuel supplies) included in the Auctioned Assets (the "Final Non-Fuel Related Adjustment Amount") and (ii) the book value, as determined using Seller's historical weighted average method, of all fuel supplies included in the Auctioned Assets (the "Final Fuel Related Adjustment Amount"). The Final Fuel Related Adjustment Amount will be based on the actual fuel inventory on the Closing Date, and the Final Non-Fuel Related Adjustment Amount will be based on an inventory survey conducted within 30 Business Days prior to the Closing Date, in each case, consistent with the inventory procedures of Seller in effect as of the date of this Agreement (the "Inventory Survey"). Seller will permit an employee, or representative, of Buyer to observe the Inventory Survey. The Adjustment Statement shall be prepared using (i) GAAP and (ii) with respect to the Final Non-Fuel Related Adjustment Amount the same system average price that Seller has historically used to calculate the book cost of its supplies, materials and spare parts inventory. Buyer agrees to cooperate with Seller in connection with the preparation of the Adjustment Statement and related information, and shall provide to Seller such access, books, records and information as may be reasonably requested from time to time. (b) Buyer may dispute the quantity delivered or quality of any inventory item shown on the Adjustment Statement, or the mathematical calculations reflected therein, by notifying Seller in writing of the disputed amount, and the basis of such dispute, within 20 Business Days of Buyer's receipt of the Adjustment Statement; provided, however, that in respect of the quality of any inventory item, Buyer may not dispute Seller's normal and customary methods for accounting for excess inventory. Buyer shall have no right to dispute any other matter in respect of the Adjustment Statement, including historical system average price used to calculate the book cost of the inventory and the Final Non-Fuel Related Adjustment Amount or the appropriateness, under GAAP or otherwise, of using such historical system average price to determine the book cost of any particular item of inventory. In the event of a dispute with respect to the quantity or quality of any inventory item shown on the Adjustment Statement, or the mathematical calculations reflected therein, Buyer and Seller shall attempt to reconcile their differences and any resolution by them as to any disputed amounts shall be final, binding and conclusive on the Parties. If Buyer and Seller are unable to reach a resolution of such differences within 20 Business Days of receipt of Buyer's written notice of dispute to Seller, Buyer and Seller shall submit the amounts remaining in dispute for determination and resolution to KPMG Peat Marwick or any other accounting firm of recognized national standing 17 reasonably acceptable to Seller and Buyer (the "Accountants"), which shall be instructed to determine and report to the Parties, within 20 Business Days after such submission, upon such remaining disputed amounts, and such report shall be final, binding and conclusive on the Parties with respect to the amounts disputed. Buyer and Seller shall each pay an amount, if any, equal to that percentage of the fees and disbursements of the Accountants incurred in connection with the resolution of such disputed amounts that corresponds to the percentage of disputed amounts awarded to the other Party by the Accountants hereunder. (c) For purposes of this Agreement, the "Closing Adjustment Amount" shall be the sum of (A) the amount of the Final Non-Fuel Related Adjustment Amount, and (B) the amount of the Final Fuel Related Adjustment Amount minus (ii) the amount of the Estimated Non-Fuel Related Adjustment Amount. If the Closing Adjustment Amount is a positive number, then on the Adjustment Date (as defined below), Buyer shall pay to Seller the amount of such positive number. If the Closing Adjustment Amount is a negative number, then on the Adjustment Date, Seller shall pay to Buyer the amount of such negative number. For purposes of this Agreement, the "Adjustment Date" means (1) if Buyer does not disagree in any respect with the Adjustment Statement, the 23rd Business Day following Buyer's receipt of the Adjustment Statement or (2) if Buyer shall disagree in any respect with the Adjustment Statement, the third Business Day following either the resolution of such disagreement by the Parties or a final determination by the Accountants in accordance with Section 3.2(b). Any amount paid under this Section 3.2(c) shall be paid with interest for the period commencing on the Closing Date up to but not including the date of payment, calculated at the prime rate of The Chase Manhattan Bank in effect on the Closing Date, and in cash by wire transfer of immediately available funds. SECTION 3.3 Allocation of Purchase Price. Buyer shall deliver to Seller at Closing a preliminary allocation among the Auctioned Assets of the amount payable by Buyer to Seller pursuant to Section 3.1 hereof, and, as soon as practicable following the Closing (but in any event within 30 days following the final determination of the Closing Adjustment Amount), Buyer shall prepare and deliver to Seller a final allocation of the amount payable by Buyer to Seller pursuant to Section 3.1 hereof, and the post-closing adjustment pursuant to Section 3.2, among the Auctioned Assets (the "Allocation"). The Allocation shall be consistent with Section 1060 of the Code and the Treasury Regulations thereunder. Seller hereby agrees to accept Buyer's Allocation unless Seller determines that such Allocation was not prepared in accordance with Section 1060 of the Code and the regulations thereunder ("Applicable Law"). If Seller so determines, Seller shall within 20 Business Days thereafter propose any changes necessary to cause the Allocation to be prepared in accordance with Applicable Law. Within 10 18 Business Days following delivery of such proposed changes, Buyer shall provide Seller with a statement of any objections to such proposed changes, together with a reasonably detailed explanation of the reasons therefor. If Buyer and Seller are unable to resolve any disputed objections within 10 Business Days thereafter, such objections shall be referred to the Accountants, whose review will be limited to whether Buyer's Allocation of such disputed items regarding the Allocation was prepared in accordance with Applicable Law. The Accountants shall be instructed to deliver to Seller and Buyer a written determination of the proper allocation of such disputed items within 20 Business Days. Such determination shall be conclusive and binding upon the parties hereto for all purposes, and the Allocation shall be so adjusted (the Allocation, including the adjustment, if any, to be referred to as the "Final Allocation"). Fees and disbursements of the Accountants attributable to the Allocation shall be shared by Buyer and Seller on the basis of their respective percentages of the disputed items which were allocated by the Accountants to the other Party hereunder. Each of Buyer and Seller agrees to timely file Internal Revenue Service Form 8594, and all Federal, state, local and foreign Tax Returns, in accordance with such Final Allocation and to report the transactions contemplated by this Agreement for Federal Income Tax and all other tax purposes in a manner consistent with the Final Allocation. Each of Buyer and Seller agrees to promptly provide the other party with any additional information and reasonable assistance required to complete Form 8594, or compute Taxes arising in connection with (or otherwise affected by) the transactions contemplated hereunder. Each of Buyer and Seller shall timely notify the other Party and each shall timely provide the other Party with reasonable assistance in the event of an examination, audit or other proceeding regarding the Final Allocation. SECTION 3.4 PPA-Related Purchase Price Adjustments. (a) In the event Closing occurs hereunder with respect to the Auctioned Assets other than the Panda PPA as contemplated by Section 4.1, (i) at the Closing, Buyer shall deposit Two Hundred Fifty-Nine Million Eight Hundred Twenty-Seven Thousand Dollars ($259,827,000.00) in immediately available funds in an interest-bearing escrow account pursuant to an escrow agreement mutually satisfactory to the Parties, providing for the release to Seller of the remaining balance of such escrow account after the release, if any, to Buyer pursuant to Section 3.4(a)(ii) (together with all earnings on such remaining balance) upon the earlier to occur of completion of the post-Closing consummation of this Agreement with respect to the Panda PPA (the "Panda Release") or the twelve (12) month period following the Closing 19 (after which the Panda PPA shall no longer be an "Assigned Contract" under Schedule 2.2(a)(iv)) ; and (ii) at the time of the Panda Release, subject to Section 3.4(b), the escrow agent shall release to Buyer the funds deposited in the escrow account described in Section 3.4(a)(i) (together with all earnings on the principal released). (b) In the event the Closing or the Panda Release occurs after October 31, 2000, Buyer shall pay Seller at Closing or at the time of the Panda Release, as applicable, by wire transfer of immediately available funds (or in the case of the Panda Release, the escrow agent shall reduce the amount released to Buyer pursuant to Section 3.4(a)(ii) above by) an amount in United States Dollars equal to One Million Two Hundred Thousand Dollars ($1,200,000.00) per month with respect to the Panda PPA, and Two Million Seven Hundred Thousand Dollars ($2,700,000.00) per month with respect to the OE PPA, as applicable, (the "Adjustment Amounts") for each calendar month (prorated for any portion of a calendar month) occurring between October 31, 2000 and the Closing Date or the time of the Panda Release, as applicable. In the event that the Panda Release does not occur within the twelve (12) month period described in Section 3.4(a)(i), the escrow agent shall release to Seller the entire amount in such escrow account (together with all earnings thereon). The foregoing amounts shall be adjustments to the Purchase Price. ARTICLE IV The Closing SECTION 4.1 Time and Place of Closing. (a) Upon the terms and subject to the satisfaction of the conditions contained in Article VIII, the closing of the sale of the Auctioned Assets contemplated by this Agreement (the "Closing") will take place on such date as the Parties may agree, which date shall be as soon as practicable, but no later than ten Business Days, following the date on which all of the conditions set forth in Article VIII have been satisfied or waived, at the Washington, D.C. offices of Dickstein Shapiro Morin & Oshinsky LLP, or at such other place or time as the Parties may agree. Notwithstanding the foregoing, in the event all conditions set forth in Article VIII are satisfied other than the condition set forth in Section 8.3(h), Closing will take place with respect to all of the Auctioned Assets as set forth above, provided, however, the Panda Release shall occur only upon satisfaction or waiver of the condition set forth in Section 8.3(h)(which condition may only be waived by Seller if the MDPSC has either issued an order determining that the Panda 20 Release does not violate the Panda PPA or dismissed the proceeding listed at Item 1 of Schedule 5.8). The date and time at which the Closing actually occurs is hereinafter referred to as the "Closing Date". (b) The Parties agree that in the event there is a post-Closing Panda Release, the effect hereunder shall be limited to (i) the Purchase Price adjustments and other payments contemplated by Section 3.4; (ii) delivery by the Parties at the time of the Panda Release of a Novation or other instruments of assignment and assumption in respect of the Panda PPA, or an acknowledgement of the applicability as of the time of the Panda Release of the provisions of Section II of Schedule 2.4 hereto to the Panda PPA; (iii) exclusion of the Panda PPA from the scope of all representations, warranties and opinions delivered at Closing (which representations, warranties and opinions as to the Panda PPA will be required to be delivered at the time of the Panda Release); and (iv) references in this Agreement and the Ancillary Agreements to the Closing Date relating to the Panda PPA shall be deemed references to the date of the Panda Release. SECTION 4.2 Payment of Estimated Purchase Price. (a) At the Closing, Buyer will pay or cause to be paid to Seller by wire transfer of immediately available funds to an account previously designated in writing by Seller an amount in United States dollars equal to the sum of (a) Two Billion Six Hundred Fifty Million Dollars ($2,650,000,000.00), (b) an amount equal to the Estimated Non-Fuel Related Adjustment Amount, (c) an amount expended by Seller between the date hereof and the Closing Date for Permitted Capital Expenditures pursuant to Section 7.1(b)(viii) (the "Estimated Purchase Price"). In addition, at the Closing, Buyer will promptly pay Seller an amount equal to the Closing Severance Expenses, as contemplated by Section 2.3(a)(x) hereof. (b) At least 5 Business Days prior to the Closing Date, Seller shall provide to Buyer its good faith estimate of the Final Non-Fuel Related Adjustment Amount as of the last day of the month preceding the Closing Date, which estimate shall be certified in writing by an appropriate officer of Seller (the "Estimated Non-Fuel Related Adjustment Amount"). On or before the Closing Date, Seller shall provide to Buyer a report which details the amounts expended by Seller between the date hereof and the Closing Date for Permitted Capital Expenditures pursuant to Section 7.1(b)(viii) (the "Permitted Capital Expenditure Report"). ARTICLE V Representations and Warranties of Seller Seller represents and warrants to Buyer as follows: 21 SECTION 5.1 Organization; Qualification. Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Virginia and the District of Columbia and has all requisite corporate power and authority to own, lease and operate the Auctioned Assets and to carry on the business of the Auctioned Assets as currently conducted. SECTION 5.2 Authority Relative to This Agreement. Seller has all necessary corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Seller of this Agreement and the Ancillary Agreements and the consummation by Seller of the transactions contemplated hereby and thereby have been duly and validly authorized by the Board of Directors of Seller or by a committee thereof to whom such authority has been delegated and no other corporate proceedings on the part of Seller are necessary to authorize this Agreement or the Ancillary Agreements or the consummation of the transactions contemplated hereby or thereby. This Agreement and the Ancillary Agreements have been duly and validly executed and delivered by Seller and, assuming that this Agreement and the Ancillary Agreements constitute valid and binding agreements of Buyer and each other party thereto, subject to the receipt of the Seller Required Regulatory Approvals and the Buyer Required Regulatory Approvals, constitute valid and binding agreements of Seller, enforceable against Seller in accordance with their respective terms. SECTION 5.3 Consents and Approvals; No Violation. (a) Subject to obtaining the Seller Required Regulatory Approvals and the Buyer Required Regulatory Approvals, neither the execution and delivery of this Agreement or the Ancillary Agreements by Seller nor the consummation of the transactions contemplated hereby or thereby or the sale by Seller of the Auctioned Assets pursuant to this Agreement will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or By-laws of Seller, (ii) except as set forth on Schedule 5.3(a), result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation to which Seller is a party or by which Seller, or any of the Auctioned Assets, may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or which would not, individually or in the aggregate, create a Material Adverse Effect, or (iii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Seller, or the Auctioned Assets, except for such violations which would not, individually or in the aggregate, create a Material Adverse Effect. 22 (b) Except for (i) the filings by Seller and Buyer required by the HSR Act and the expiration or earlier termination of all waiting periods under the HSR Act, and (ii) the Required Regulatory Approvals set forth on Schedule 5.3(b) attached hereto (collectively, the "Seller Required Regulatory Approvals"), no declaration, filing or registration with, or notice to, or authorization, consent or approval of any Governmental Authority is necessary for the consummation by Seller of the transactions contemplated hereby or by the Ancillary Agreements, other than such declarations, filings, registrations, notices, authorizations, consents or approvals (A) which, if not obtained or made, would not individually or in the aggregate, create a Material Adverse Effect or (B) which relate to the Transferable Permits. SECTION 5.4 Personal Property. Except for Permitted Exceptions, Seller has good and marketable title, free and clear of all Encumbrances, to all personal property included in the Auctioned Assets. SECTION 5.5 Real Estate. Except for Permitted Exceptions, Seller has good and marketable title, free and clear of all Encumbrances, to all Buyer Real Estate. Schedule 5.5(a) contains legal descriptions of the Buyer Real Estate. The most recent real property surveys in the possession of Seller with respect to the Buyer Real Estate or any portion thereof are listed on Schedule 5.5(b). SECTION 5.6 Leases. As of the date of this Agreement, Seller is not a tenant under any real property leases which are material to the Auctioned Assets. SECTION 5.7 Certain Contracts and Arrangements. (a) Except for (i) any contract or agreement listed on Schedule 2.2(a)(iv) (the "Material Contracts") and (ii) Contracts which will expire prior to the Closing Date or that are permitted to be entered into under this Agreement, Seller is not a party to any contract which is material to the business or operations of the Auctioned Assets. (b) Each Contract (i) constitutes a valid and binding obligation of Seller, and, to the Knowledge of Seller, of the other parties thereto, and (ii) to the Knowledge of Seller, is in full force and effect. (c) Except as set forth on Schedule 5.7 attached hereto, to the Knowledge of the Seller, there is not, under any of the Contracts, any default or event which, with notice or lapse of time or both, would constitute a material default by Seller, except for such events of default and other events as to which requisite waivers or consents have been obtained or which would not, individually or in the aggregate, create a Material Adverse Effect. SECTION 5.8 Legal Proceedings. Except as set forth on Schedule 5.8 or in the Filed Seller SEC Documents, as of the date of this Agreement, there are no claims, actions, proceedings or investigations pending or, to the 23 Knowledge of Seller, threatened against or relating to Seller with respect to the business or operations of the Auctioned Assets, before any Governmental Authority which would, individually or in the aggregate, be reasonably expected to create a Material Adverse Effect. With respect to the business or operations of the Auctioned Assets, Seller is not, as of the date of this Agreement, subject to any outstanding judgment, rule, order, writ, injunction or decree of any Governmental Authority which could create a Material Adverse Effect. The representations and warranties of Seller set forth in this Section 5.8 shall not apply to, and do not cover, any environmental matters which, with respect to any representations and warranties of Seller, are exclusively governed by Section 5.10. SECTION 5.9 Permits; Compliance with Law. Except as set forth on Schedule 5.9 or in the Filed Seller SEC Documents, Seller is in current compliance with all Permits necessary to conduct the business and operations of the Auctioned Assets as currently conducted, and, to the Knowledge of Seller, Seller is otherwise in current compliance with all laws, statutes, orders, rules, regulations, ordinances or judgments of any Governmental Authority applicable to the business and operations of the Auctioned Assets, except for such failures to comply with such Permits, or such failures to be in compliance with such laws, statutes, orders, rules, regulations, ordinances or judgments, which would not, individually or in the aggregate, create a Material Adverse Effect. The representations and warranties of Seller set forth in this Section 5.9 shall not apply to, and do not cover, any environmental matters which, with respect to any representations and warranties of Seller, are exclusively governed by Section 5.10. SECTION 5.10 Environmental Matters. (a) Except as set forth in Schedule 5.10(a) or disclosed in the Filed Seller SEC Documents, Seller holds, and is in compliance with all Environmental Permits required for Seller to conduct the business and operations of the Auctioned Assets as currently conducted under applicable Environmental Laws, and, to the Knowledge of Seller, Seller is otherwise in current compliance with all applicable Environmental Laws on the date hereof with respect to the business and operations of the Auctioned Assets, except for such failures to hold or comply with such Environmental Permits, or such failures to be in compliance with such applicable Environmental Laws on the date hereof, which would not, individually or in the aggregate, create a Material Adverse Effect. (b) Except as set forth in Schedule 5.10(b) or disclosed in the Filed Seller SEC Documents, Seller has not received any written notice of a violation of any Environmental Law, or been notified that it is a potentially responsible party under the Federal Comprehensive Environmental Response, Compensation, and Liability Act or any similar state law with respect to any real property included in the 24 Buyer Real Estate or any Off-Site location, except for such matters under such Environmental Laws as would not, individually or in the aggregate, create a Material Adverse Effect. (c) To the Knowledge of Seller, no Release of Hazardous Substances has occurred at, from, in, on, or under the real property included in the Buyer Real Estate that has given, or could give rise to Environmental Liabilities under Environmental Laws, except for such Environmental Liabilities which (i) are disclosed in the environmental reports set forth on Schedule 5.10(c) attached hereto, or (ii) would not, individually or in the aggregate, have a Material Adverse Effect. For purposes of the representations and warranties made in this Article V, the Seller specifically disclaims any representations and warranties with respect to standards of performance for new stationary sources promulgated under Section 111 of the Federal Clean Air Act, 42 U.S.C. Section 7411. The representations and warranties made in this Section 5.10 are the exclusive representations and warranties of the Seller relating to environmental matters as of the date hereof. SECTION 5.11 Labor Matters. Seller has previously made available to Buyer copies of all collective bargaining agreements to which Seller is a party or is subject and which relate to the business or operations of the Auctioned Assets. With respect to the business and operations of the Auctioned Assets, as of the date of this Agreement, (a) Seller is in compliance with all applicable laws regarding employment and employment practices, terms and conditions of employment and wages and hours, (b) Seller has not received written notice of any unfair labor practice complaint against Seller pending before the National Labor Relations Board, (c) there is no labor strike, slowdown or stoppage actually pending or, to the Knowledge of Seller, threatened against or affecting Seller, (d) Seller has not received notice that any representation petition respecting the employees of Seller has been filed with the National Labor Relations Board, (e) no arbitration proceeding arising out of or under collective bargaining agreements is pending against Seller and (f) Seller has not experienced any primary work stoppage since December 31, 1998, except, in the case of each of the foregoing clauses, for such matters as would not, individually or in the aggregate, create a Material Adverse Effect. SECTION 5.12 ERISA; Benefit Plans. Schedule 5.12 sets forth a list of all material deferred compensation, profit-sharing, retirement and pension plans and all material bonus and other material employee benefit or fringe benefit plans maintained, or with respect to which contributions have been made, by Seller with respect to current or former employees employed in connection with the power generation operations of the Generating Facilities (collectively, "Benefit Plans"). 25 Seller and each trade or business (whether or not incorporated) which are or have ever been under common control, or which are or have ever been treated as a single employer, with Seller under Section 414(b), (c), (m) or (o) of the Code (an "ERISA Affiliate") have fulfilled their respective obligations under the minimum funding requirements of Section 302 of ERISA, and Section 412 of the Code, with respect to each Benefit Plan which is an "employee pension benefit plan" as defined in Section 3(2) of ERISA and each such plan is in compliance in all respects with the presently applicable provisions of ERISA and the Code, except for such failures to fulfill such obligations or comply with such provisions which would not, individually or in the aggregate, create a Material Adverse Effect. Neither Seller nor any ERISA Affiliate has incurred any liability under Section 4062(b) of ERISA, or any withdrawal liability under Section 4201 of ERISA, to the Pension Benefit Guaranty Corporation in connection with any Benefit Plan which is subject to Title IV of ERISA which liability remains outstanding, and there has not been any reportable event (as defined in Section 4043 of ERISA) with respect to any such Benefit Plan (other than a reportable event with respect to which the 30-day notice requirement has been waived by the PBGC). Neither Seller nor any ERISA Affiliate or parent corporation, within the meaning of Section 4069(b) or Section 4212(c) of ERISA, has engaged in any transaction, within the meaning of Section 4069(b) or Section 4212(c) of ERISA. No Benefit Plan and no "employee pension benefit plan" (as defined in Section 3(2) of ERISA) maintained by Seller or any ERISA Affiliate or to which Seller or any ERISA Affiliate has contributed is a multiemployer plan. SECTION 5.13 Taxes. With respect to the Auctioned Assets and trades or businesses associated with the Auctioned Assets, (a) all Tax Returns required to be filed have been filed and (b) all Taxes shown to be due on such Tax Returns, and all Taxes otherwise owed, have been paid in full, except to the extent that any failure to file or any failure to pay any Taxes would not, individually or in the aggregate, create a Material Adverse Effect. No written notice of deficiency or assessment has been received from any taxing authority with respect to liabilities for Taxes of Seller in respect of the Auctioned Assets which has not been fully paid or finally settled or which is not being contested in good faith through appropriate proceedings, except for any such notices regarding Taxes which would not, individually or in the aggregate, create a Material Adverse Effect. There are no outstanding agreements or waivers extending the applicable statutory periods of limitation for Taxes associated with the Auctioned Assets for any period, except for any such agreements or waivers which would not, individually or in the aggregate, create a Material Adverse Effect. SECTION 5.14 Undisclosed Liabilities. With respect to the Auctioned Assets, there are no liabilities or obligations of any nature or kind (absolute, accrued, contingent or otherwise) that would have been required to be set forth on a balance sheet in respect of the Auctioned Assets or in the notes thereto prepared in 26 accordance with GAAP, as applied by Seller in connection with its December 31, 1999 balance sheet, except for any such liabilities or obligations which (a) are disclosed in or contemplated or permitted by this Agreement or the Ancillary Agreements (including the Assumed Obligations), (b) are disclosed in the Information Memorandum, (c) are disclosed in the Filed Seller SEC Documents, (d) have been incurred in the ordinary course of business, or (e) which would not, individually or in the aggregate, create a Material Adverse Effect. SECTION 5.15 Brokers. No broker, finder or other person is entitled to any brokerage fees, commissions or finder's fees in connection with the transaction contemplated hereby by reason of any action taken by Seller, except Navigant Consulting, Inc. and Merrill Lynch & Co., which are acting for and at the expense of Seller. SECTION 5.16 Insurance. Seller carries policies of insurance covering fire, workers' compensation, property all-risk, comprehensive bodily injury, property damage liability, automobile liability, product liability, completed operations, explosion, collapse, contractual liability, personal injury liability and other forms of insurance relating to the Auctioned Assets, or otherwise self-insures in accordance with all statutory and regulatory criteria against any such liabilities, which insurance is in such amounts, has such deductibles and retentions and is underwritten by such companies as would be obtained by a reasonably prudent electric power business. SECTION 5.17 Disclaimers. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THIS ARTICLE V, THE AUCTIONED ASSETS ARE BEING SOLD AND TRANSFERRED "AS IS, WHERE IS", AND SELLER IS NOT MAKING ANY OTHER REPRESENTATIONS OR WARRANTIES WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, CONCERNING SUCH AUCTIONED ASSETS (INCLUDING ANY RELATING TO LIABILITIES, OPERATIONS OF THE GENERATING FACILITIES, CONDITION, VALUE OR QUALITY OF THE AUCTIONED ASSETS OR THE PROSPECTS (FINANCIAL OR OTHERWISE), RISKS OR OTHER INCIDENTS OF THE AUCTIONED ASSETS) OR WITH RESPECT TO THIS AGREEMENT OR THE ANCILLARY AGREEMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. SELLER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE AUCTIONED ASSETS, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS, OR THE APPLICABILITY OF ANY GOVERNMENTAL REQUIREMENTS, INCLUDING BUT NOT LIMITED 27 TO ANY ENVIRONMENTAL LAWS, OR WHETHER SELLER POSSESSES SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE THE AUCTIONED ASSETS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN SECTION 5.10 HEREOF, SELLER FURTHER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING THE ABSENCE OF HAZARDOUS SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING UNDER ENVIRONMENTAL LAWS WITH RESPECT TO THE AUCTIONED ASSETS, ALL OF WHICH ARE HEREBY EXPRESSLY WAIVED BY BUYER. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SELLER MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION SET FORTH IN, OR CONTEMPLATED BY, THE INFORMATION MEMORANDUM. ARTICLE VI Representations and Warranties of Buyer Buyer represents and warrants to Seller as follows: SECTION 6.1 Organization. Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as is now being conducted. SECTION 6.2 Authority Relative to This Agreement. Buyer has all necessary corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is party and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Buyer of this Agreement and such Ancillary Agreements and the consummation by Buyer of the transactions contemplated hereby and thereby have been duly and validly authorized by the Board of Directors of Buyer and no other corporate proceedings on the part of Buyer are necessary to authorize this Agreement or such Ancillary Agreements or the consummation of the transactions contemplated hereby or thereby. This Agreement and such Ancillary Agreements have been duly and validly executed and delivered by Buyer and, assuming that this Agreement and the Ancillary Agreements constitute valid and binding agreements of Seller and each other party thereto, subject to the receipt of the Buyer Required Regulatory Approvals and the Seller Required Regulatory Approvals, this Agreement and the Ancillary Agreements constitute valid and binding agreements of Buyer, enforceable against Buyer in accordance with their respective terms. SECTION 6.3 Consents and Approvals; No Violation. 28 (a) Subject to obtaining the Buyer Required Regulatory Approvals and the Seller Required Regulatory Approvals, neither the execution and delivery of this Agreement or the Ancillary Agreements to which it is party by Buyer nor the consummation of the transactions contemplated hereby or thereby or the purchase by Buyer of the Auctioned Assets pursuant to this Agreement will (i) conflict with or result in any breach of any provision of the [Organizational Documents] of Buyer, (ii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation to which Buyer or any of its subsidiaries is a party or by which any of their respective assets may be bound or (iii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Buyer, or any of its assets, except, in the case of clause (ii) and (iii), for such failures to obtain a necessary consent, defaults and violations which would not, individually or in the aggregate, have a Buyer Material Adverse Effect. (b) Except for (i) the filings by Buyer and Seller required by the HSR Act and the expiration or earlier termination of all waiting periods under the HSR Act, and (ii) the Required Regulatory Approvals set forth on Schedule 6.3(b) attached hereto (collectively, the "Buyer Required Regulatory Approvals"), no declaration, filing or registration with, or notice to, or authorization, consent or approval of any Governmental Authority is necessary for the consummation by Buyer of the transactions contemplated hereby or by the Ancillary Agreements, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which relate to the Transferable Permits. SECTION 6.4 Availability of Funds. Buyer has sufficient funds available to it or has received binding written commitments (copies of which have heretofore been delivered to Seller) from one or more nationally recognized financial institutions to provide sufficient funds on the Closing Date to pay the Estimated Purchase Price. SECTION 6.5 Brokers. No broker, finder or other person is entitled to any brokerage fees, commissions or finder's fees in connection with the transaction contemplated hereby by reason of any action taken by Buyer, except Credit Suisse First Boston Corporation, which is acting for and at the expense of Buyer. SECTION 6.6 No Knowledge of Seller's Breach. Buyer has no Knowledge of any breach by Seller of any representation or warranty of Seller, or of any other condition or circumstance that would excuse Buyer from its timely performance of its obligations hereunder. Buyer shall notify promptly Seller, with respect to Seller's representations and warranties or such other conditions or 29 circumstances, if any such information comes to Buyer's attention prior to the Closing. SECTION 6.7 Qualified Buyer. Buyer is qualified to obtain any Permits and Environmental Permits necessary for Buyer to own and operate the Auctioned Assets as of the Closing Date. Without limiting the foregoing, Buyer is not aware of any reason or circumstance that would prevent Buyer from procuring the Buyer Required Regulatory Approvals. SECTION 6.8 WARN Act. Buyer does not intend to engage in a "Plant Closing" or "Mass Lay-off" as such terms are defined in the WARN Act within sixty days of the Closing Date. SECTION 6.9 Financial Representations. Buyer has provided Seller with the most recent balance sheet, income statement and statement of changes in cash flows and independent auditors reports for each of the preceding three fiscal years and most recent interim period. Such financial statements have been prepared in accordance with GAAP and fairly reflect the financial position and results of operations of Buyer as at and for the periods therein. SECTION 6.10 Legal Proceedings. There are no claims, actions, proceedings or investigations pending or, to the Knowledge of Buyer threatened against or relating to Buyer before any Governmental Authority which would, individually or in the aggregate, be reasonably expected to create a Buyer Material Adverse Effect. Buyer is not subject to any outstanding judgment, rule, order, writ, injunction or decree of any Governmental Authority which could create a Buyer Material Adverse Effect. ARTICLE VII Covenants of the Parties SECTION 7.1 Conduct of Business Relating to the Auctioned Assets. (a) Except with the prior written consent of Buyer (such consent not to be unreasonably withheld) or as required to effect the purchase and sale of the Auctioned Assets and related transactions contemplated by this Agreement, during the period from the date of this Agreement to the Closing Date, Seller will operate the Auctioned Assets in the usual, regular and ordinary course and in accordance with Good Utility Practices, and continue to pay accounts payable which relate to the Auctioned Assets in a timely manner, consistent with past practice. 30 (b) Notwithstanding the foregoing, except as contemplated in this Agreement or the Ancillary Agreements, prior to the Closing Date, without the prior written consent of Buyer (such consent not to be unreasonably withheld), Seller will not: (i) except for Permitted Exceptions, grant any Encumbrance on the Auctioned Assets securing any indebtedness for borrowed money or guarantee or other liability for the obligations of any Person; (ii) make any material change in the levels of fuel inventory and supplies, materials and spare parts inventory customarily maintained by Seller with respect to the Auctioned Assets, other than consistent with past practice; (iii) sell, lease (as lessor), transfer or otherwise dispose of, any of the Auctioned Assets, other than assets that become obsolete or assets used, consumed or replaced in the ordinary course of business consistent with past practice; (iv) except as contemplated by Sections 7.9 and 7.17 with respect to the Unassigned PPAs, terminate, materially extend or otherwise materially amend any of the Material Contracts (other than in accordance with their respective terms) or waive any default by, or release, settle or compromise any material claim against, any other party thereto; (v) amend any of the Transferable Permits, other than (A) Transferable Permits not material to the operations of the Auctioned Assets as currently conducted, (B) as reasonably necessary to complete the transfer of Transferable Permits as contemplated hereby, and (C) routine renewals or non-material modifications or amendments; (vi) enter into any Contract for the purchase, sale or storage of fuel (other than in the ordinary course of business) with respect to the Auctioned Assets (whether commodity or transportation) with a term in excess of 12 months and not terminable on or before the Closing Date either (A) automatically, or (B) by option of Seller (or, after the 31 Closing, by Buyer) in its sole discretion, if the aggregate payments under such commitment for fuel and all other outstanding commitments for fuel (not previously approved by Buyer) would exceed $5,000,000; (vii) except in the case of capital expenditures covered by clause (viii) below, enter into any Contract with respect to the Auctioned Assets for goods or services not addressed in clauses (i) through (vi) with a term in excess of 12 months, if the aggregate future liability or receivable outstanding on the date for measurement for the purpose of this covenant for all such Contracts would be in excess of $1,000,000, not including any such Contract terminable by notice of not more than 30 days without penalty or cost (other than de minimis administrative costs); provided, however, that notwithstanding any other provision of this Agreement to the contrary, Seller may enter into any Contract reasonably necessary to effect the physical, legal or operational separation of the sites on which the Auctioned Assets are located or to otherwise implement the change of ownership contemplated hereby, or subdivision, of such sites or implement the provisions of the Ancillary Agreements; (viii) make, or commit to make, any capital expenditures except (A) those capital expenditures described on Schedule 7.1(b)(viii), (B) those capital expenditures which do not exceed in the aggregate $2,000,000 (in addition to those other capital expenditures permitted under this subsection (viii)), (C) those capital expenditures which are approved by Buyer, or (D) those capital expenditures which are mandated by a law or regulation of a Governmental Authority; provided, however, that, in the case of clause (D), Seller will not make any such mandated capital expenditures (unless the failure by Seller to make such capital expenditures would have an adverse impact upon the Auctioned Assets) if (y) such mandated capital expenditures are not required to be made by Seller prior to the Closing Date, and (z) the Buyer assumes responsibility, at its sole cost, to make such mandated capital expenditures after the Closing (any capital expenditures described above are the "Permitted Capital Expenditures"); 32 (ix) enter into any Contract with Affiliates of Seller the term of which are not indicative of arms-length negotiations; (x) (A) amend any Benefit Plans, or (B) grant any Employee an increase in compensation, except in the ordinary course of business consistent with past practice; (xi) make any tax election with respect to the Auctioned Assets; or (xii) enter into any Contract with respect to the Auctioned Assets relating to any of the transactions set forth in the foregoing clauses (i) through (xi). (c) Without limiting the generality of Sections 7.1(a) and (b), to the extent Section 7.1(a) or (b) prohibits Seller from entering into any Contract for goods and services in connection with maintenance or capital expenditures, Buyer agrees that Seller may request Buyer's consent to enter into such Contract, such consent not to be unreasonably withheld, and to the extent Buyer so consents, all liabilities and obligations under such Contract shall constitute Assumed Obligations and Buyer shall otherwise reimburse Seller for all its expenditures thereunder. (d) Notwithstanding anything in this Section 7.1 to the contrary, Seller may take any action, incur any expense or enter into any obligation with respect to the Auctioned Assets to the extent that (i) all obligations and liabilities arising with respect thereto do not constitute Assumed Obligations, (ii) such actions are at Seller's expense and are deemed by Seller to be necessary, or (iii) Seller otherwise provides that such obligations and liabilities shall not be assumed or retained by Buyer. SECTION 7.2 Access to Information. (a) Between the date of this Agreement and the Closing Date, Seller will, subject to the Confidentiality Agreement, during ordinary business hours and upon reasonable notice (i) give Buyer and its representatives reasonable access to all books, records, personnel, plants, offices and other facilities and properties constituting the Auctioned Assets, including for the purpose of observing the operation by Seller of the Auctioned Assets, (ii) permit Buyer to make such reasonable inspections thereof as Buyer may reasonably request, (iii) furnish Buyer with such financial and operating data and other information with respect to the Auctioned Assets as Buyer may from time to time reasonably request, (iv) furnish 33 Buyer upon request a copy of each material report, schedule or other document with respect to the Auctioned Assets filed by Seller with, or received by Seller from, any PSC or FERC; provided, however, that (A) any such activities shall be conducted in such a manner as not to interfere unreasonably with the operation of the Auctioned Assets, (B) Seller shall not be required to take any action which would constitute a waiver of the attorney-client privilege and (C) Seller need not supply Buyer with (1) any information or access which Seller is under a legal obligation not to supply or (2) any information which Seller has previously supplied to Buyer. Notwithstanding anything in this Section 7.2 to the contrary, (i) Seller will not be required to provide such information or access to any employee records other than Transferred Employee Records, (ii) Buyer shall not have the right to perform or conduct any environmental sampling or testing at, in, on, around or underneath the Auctioned Assets and (iii) Seller shall not be required to provide such access or information with respect to any Retained Asset or Retained Liabilities. (b) From and after the Closing Date, for a period of no less than 7 years, Buyer shall retain all Operating Records (whether in electronic form or otherwise) relating to the Auctioned Assets on or prior to the Closing Date. Buyer also agrees that, from and after the Closing Date, Seller shall have the right, upon reasonable request to Buyer, to have access to, or receive from Buyer copies of, any Operating Records or other information in Buyer's possession relating to the Auctioned Assets on or prior to the Closing Date and required by Seller in order to comply with applicable law. Seller shall reimburse Buyer for its reasonable costs and expenses incurred in connection with the foregoing sentence. If the Buyer shall desire to dispose of any Operating Records or other information contemplated above, Buyer shall, prior to such disposition, give Seller a reasonable opportunity to segregate and remove such records and information as it may select. SECTION 7.3 Consents and Approvals; Transferable Permits. (a) Seller and Buyer shall cooperate with each other and (i) prepare and file (or otherwise effect) as soon as practicable all applications, notices, petitions and filings with respect to and (ii) use their reasonable best efforts to obtain (A) the Seller Required Regulatory Approvals and the Buyer Required Regulatory Approvals and (B) any other consents, approvals or authorizations of any other Governmental Authorities or third parties that are necessary to consummate the transactions contemplated by this Agreement or the Ancillary Agreements other than such consents, individually or in the aggregate, create a Material Adverse Effect. Without limiting the generality of the foregoing, (1) each Party agrees to, upon the other party's request, support such other Party's applications for regulatory approvals of the purchase and sale of the Auctioned Assets contemplated by this Agreement, and (2) Buyer and Seller agree to defend any lawsuits or other legal proceedings, 34 whether judicial or administrative, challenging this Agreement or the Ancillary Agreements, or the consummation of the transactions contemplated hereby or thereby, including seeking to have any stay or temporary restraining order entered by any Governmental Authority vacated or reversed. (b) Upon execution of this Agreement, Seller shall commence the process of transferring to Buyer the Transferable Permits, including completing and filing applications and related documents with the appropriate Governmental Authorities. Seller hereby reserves the right to modify, alter or amend any Transferable Permit or to refuse to correct violations or deficiencies in respect of any Transferable Permit as long as such modification, alteration, amendment or refusal would not, individually or in the aggregate, create a Material Adverse Effect. (c) Seller shall use its reasonable best efforts to cooperate with Buyer in the transfer of Transferable Permits to Buyer by Closing. If in the sole discretion of Seller, the transfer of any Transferable Permit cannot be completed by Closing, Buyer is hereby authorized, but not required, to act as Seller's representative and agent in respect of such Transferable Permit and to do all things necessary for effecting transfer of such Transferable Permit as soon after the Closing as is practicable, with Seller remaining the Transferable Permit "holder of record" in such case until such transfer is completed. In the case of each such Transferable Permit, Seller shall, to the maximum extent permitted by law and such Transferable Permit, enter into such reasonable arrangements with Buyer as are necessary to provide Buyer with the benefits and obligations of such Transferable Permit. If in the sole discretion of Seller, Buyer is able to complete the transfer of any Transferable Permit after Closing without the occurrence of any event that, if such event had occurred between the execution of this Agreement and the Closing, would have created, individually or in the aggregate, a Material Adverse Effect, Seller may substitute Buyer in its place and stead as the Party responsible for completing the transfer of such Transferable Permit. SECTION 7.4 Further Assurances. Subject to the terms and conditions of this Agreement, each of the Parties will use its reasonable best efforts to take, or cause to be taken, as soon as possible, all action, and to do, or cause to be done, as soon as possible, all things necessary, proper or advisable under applicable laws and regulations to consummate the sale of the Auctioned Assets pursuant to this Agreement as soon as possible, including using its reasonable best efforts to ensure satisfaction of the conditions precedent to each Party's obligations hereunder. Prior to Buyer's submission of any application with a Governmental Authority for a regulatory approval, Buyer shall submit such application to Seller for review and comment and Buyer shall incorporate into such application any revisions reasonably requested by Seller. Neither of the Parties will, without prior written consent of the other Party, take or fail to take, or permit their respective Affiliates to take or fail to 35 take, any action, which would reasonably be expected to prevent or materially impede, interfere with or delay the consummation, as soon as possible, of the transactions contemplated by this Agreement or the Ancillary Agreements. SECTION 7.5 Public Statements. The Parties shall consult with each other prior to issuing any public announcement, statement or other disclosure with respect to this Agreement, the Ancillary Agreements or the transactions contemplated hereby or thereby, and shall not issue any such public announcement, statement or other disclosure prior to such consultation, except as may be required by law. SECTION 7.6 Tax Matters. (a) All transfer and sales taxes (including (i) sales tax on the sale or purchase of the Auctioned Assets imposed by Governmental Authorities, (ii) transfer tax on the conveyance of interest in real property imposed by Governmental Authorities, and (iii) any petroleum business taxes and similar excise taxes on sales of petroleum based products imposed by Governmental Authorities) incurred in connection with this Agreement and the transactions contemplated hereby shall be borne by Buyer. Buyer shall prepare and file in a timely manner any and all Tax Returns or other documentation relating to such taxes; provided, however, that, to the extent required by applicable law, Seller will join in the execution of any such Tax Returns or other documentation relating to any such taxes. Buyer shall provide to Seller copies of each Tax Return described in the proviso in the preceding sentence at least 30 days prior to the date such Tax Return is required to be filed. (b) At Seller's election, but on no less than 10 Business Days' notice to Buyer, the transfer of some or all of the Auctioned Assets and the receipt of the amount payable by Buyer to Seller pursuant to Section 3.1 hereof shall be made through a qualified intermediary in a manner satisfying the requirements of Treasury Regulation Section 1.1031(k)-1(g); provided, however, that Seller shall pay and be responsible for any incremental costs associated with such use of a qualified intermediary. SECTION 7.7 Bulk Sales or Transfer Laws. Buyer acknowledges that Seller will not comply with the provisions of any bulk sales or transfer laws of any jurisdiction in connection with the transactions contemplated by this Agreement. Buyer hereby waives compliance by Seller with the provisions of the bulk sales or transfer laws of all applicable jurisdictions. SECTION 7.8 Witness Services. At all times from and after the Closing Date, each Party shall use reasonable best efforts to make available to the other 36 Party, upon reasonable written request, its and its subsidiaries' then current or former officers, directors, employees (including former employees of Seller) and agents as witnesses to the extent that (i) such persons may reasonably be required by such requesting Party in connection with any claim, action, proceeding or investigation in which such requesting Party may be involved and (ii) there is no conflict between Buyer and Seller in such claim, action, proceeding or investigation. Such other Party shall be entitled to receive from such requesting Party, upon the presentation of invoices for such witness services, payments for such amounts, relating to supplies, disbursements and other out-of-pocket expenses and direct and indirect costs of employees who are witnesses, as may be reasonably incurred in providing such witness services. SECTION 7.9 Control of Litigation. The Buyer and Seller agree and acknowledge that Seller shall be entitled exclusively to control, defend and settle any litigation, administrative or regulatory proceeding, and any investigation or remediation activity arising out of or related to any Unassigned PPAs, Retained Assets or Retained Liabilities, and Buyer agrees to cooperate fully in connection therewith. Without Buyer's prior written consent, Seller shall not settle any litigation, administrative or regulatory proceeding relating to an Unassigned PPA that would result in a material adverse effect on the rights of Buyer hereunder. Buyer and Seller agree and acknowledge that Buyer shall be entitled to participate at its expense and assume control of any litigation, administrative or regulatory proceeding, exclusively arising out of or related to any Assumed Obligations, and Seller agrees to cooperate fully in connection therewith. Anything contained in this Agreement to the contrary notwithstanding, no Party shall be entitled to assume the defense of any litigation, administrative or regulatory proceeding or investigation if such litigation, administrative or regulatory proceeding or investigation seeks an order, injunction or other equitable relief for other than monetary damages against the other Party which, if successful, would materially adversely affect the business of such other Party. SECTION 7.10 Confidentiality. Buyer hereby agrees to comply with its obligations to keep confidential certain information in accordance with the terms set forth in the Confidentiality Agreement. SECTION 7.11 Risk of Loss. (a) Except as otherwise provided for in this Section 7.11, from the date hereof through the Closing Date, all risk of loss or damage to the assets and properties included in the Auctioned Assets shall be borne by Seller (other than loss or damage caused by the acts or negligence of Buyer or any of its employees, officers, agents or representatives, which loss or damage shall be the responsibility of Buyer). 37 (b) If, before the Closing Date, all or any portion of the Auctioned Assets are (1) taken by eminent domain or are the subject of a pending or (to the Knowledge of the Seller) contemplated taking which has not been consummated, or (2) damaged or destroyed by fire or other casualty, Seller shall notify Buyer promptly in writing of such fact. If the fair market value of the Auctioned Assets that are the subject of, or are adversely affected by, such taking or loss is one percent (1%) or less of the fair market value of the Auctioned Assets (as estimated in good faith by Seller), Buyer and Seller agree that such taking or loss shall not have any effect on (or otherwise impede in any manner) the transactions contemplated hereby, and Buyer shall be entitled to an assignment of all of Seller's right, title and interest in and to any related award or insurance proceeds. If (1) the fair market value of the Auctioned Assets that are the subject of, are adversely affected by such taking or loss is in excess of one percent (1%) of the fair market value of the Auctioned Assets (as estimated in good faith by Seller in accordance with the preceding sentence) and (2) Seller has not notified Buyer of its intention to cure such taking or loss within 30 days after its occurrence, Buyer and Seller shall negotiate in good faith a fair and equitable adjustment to the Purchase Price and, upon such settlement, consummate the transactions contemplated by this Agreement pursuant to the terms of this Agreement. If no such settlement is reached within 60 days after Seller has notified Buyer of such taking or casualty, Buyer or Seller may terminate this Agreement pursuant to Section 11.1. SECTION 7.12 Tax Exempt Financing. (a) Buyer understands and agrees that: (i) those certain facilities of the Seller listed on Schedule 7.12 attached hereto (the "Exempt Facilities") have been financed, and refinanced, in whole or in part, with the proceeds of the issuance and sale by various Governmental Authorities of industrial development revenue bonds or private activity bonds as set forth on Schedule 7.12 attached hereto (collectively, the "Revenue Bonds") the interest on which, with certain exceptions, is excluded from gross income for purposes of federal income taxation; and Seller is the economic obligor in respect of such bonds; (ii) The basis for such exclusion is the use of the Exempt Facilities for the purpose of (A) the abatement or control of atmospheric or water pollution or contamination and/or (B) the collection, storage, treatment, utilization, processing or final disposal of solid waste and/or (C) the collection, storage, treatment, utilization, processing or 38 final disposal of sewage, such qualifying purposes being discussed in more detail in (b) below; (iii) The use of the Exempt Facilities for a purpose other than a qualifying purpose indicated in subsection (ii) above could impair (A) such exclusion from gross income of the interest on such bonds, possibly with retroactive effect, unless appropriate remedial action were taken (which could include prompt defeasance or redemption of such bonds) and/or (B) the deductibility of payment by Seller of interest based on the restrictions in Section 150 (b) of the Code; and (iv) Any breach by Buyer of its obligations under this Section 7.12 could result in the incurrence by Seller of additional costs and expenses, including without limitation, increased interest costs, loss of the interest deduction for tax purposes and transaction costs relating to any refinancing, redemption and/or defeasance of all or part of the Revenue Bonds, and Buyer will be liable to Seller for such additional costs and expenses. (b) i) Buyer agrees that it shall not use, or permit the use of, the Exempt Facilities for any purpose other than the continuing use of such Exempt Facilities for (A) abating or controlling atmospheric or water pollution or contamination by removing, altering, disposing of or storing pollutants, contaminants, waste or heat, all as contemplated in U.S. Treasury Regulations Section 1.103-8(g); (B) the collection, storage, treatment, utilization, processing or final disposal of solid waste, all as contemplated in U.S. Treasury Regulations Section 1.103-8(f); or (C) the collection, storage, treatment, utilization, processing or final disposal of sewage, all as contemplated in U.S. Treasury Regulations Section 1.103-8(f) 39 unless Buyer has obtained at its own expense an opinion addressed to Seller of nationally recognized bond counsel reasonably acceptable to Seller ("Bond Counsel") that such use will not impair (x) the exclusion from gross income of the interest on any issue of Revenue Bonds for Federal income tax purposes or (y) the deductibility of Seller's payments of interest based on the restrictions in Section 150(b) of the Code. (ii) Buyer reasonably expects, as of the date of this Agreement, that the Exempt Facilities will continue to be used for the qualifying purposes set forth in subsection (i) above, and for no other purpose, for the remainder of their useful lives. (c) It is expressly understood and agreed that the provisions of clause (b) above shall not prohibit Buyer from (i) suspending the operation of the Exempt Facilities on a temporary basis, and/or (ii) selling exclusively for cash Exempt Facilities consisting of personal property, in whole or in part, including any sale for scrap, provided that the operation of the Generating Plant served by such Exempt Facilities shall not theretofore have been, and is not then being, terminated on a permanent basis, and provided further that the proceeds of such sale of the Exempt Facilities shall within six months from the date of sale be expended to acquire replacement property to be used for the same qualifying purpose as the Exempt Facilities so sold, and/or (iii) any other suspension or termination of operation or sale, exchange, transfer or other disposition of Exempt Facilities, provided that Buyer has obtained at its own expense an opinion addressed to Seller of Bond Counsel that the failure to take this action will not impair (x) the exclusion from gross income of the interest on any issue of Revenue Bonds for Federal income tax purposes or (y) the deductibility of Seller's payments of interest based on the restrictions in Section 150(b) of the Code. (d) Buyer agrees that it shall not issue, or have issued on its behalf, any tax-exempt bonds to finance or refinance its acquisition of the Exempt Facilities; provided that it is expressly understood and agreed that this clause (d) shall not prohibit the use of tax-exempt bonds to finance or refinance any improvement to the Exempt Facilities made after the date of acquisition or to any assets other than the Exempt Facilities. (e) Buyer agrees that it shall give Seller at least 180 days' prior written notice of any suspension or termination of the operation of the Exempt Facilities, or any part thereof, and of any sale, exchange, transfer or other disposition of the Exempt Facilities, or any part thereof, including, but not limited to, a sale for scrap, such written notice to be provided whether or not an opinion of Bond Counsel is required to be obtained in accordance with clause (c). 40 (f) If Seller shall desire to refund any Revenue Bonds, Buyer shall cooperate with Seller and with Bond Counsel with respect to such refunding bonds and shall provide upon request any representations, agreements or covenants that are reasonably requested concerning its compliance to such date and/or in the future with the representations, agreements and covenants made herein. (g) If Buyer shall sell, exchange, transfer or otherwise dispose of the Exempt Facilities to a third party, Buyer shall cause to be included in the documentation relating to such transaction covenants and agreements on the part of such third party for the benefit of the Seller, and as requested by the Seller, the trustee for the holders of any Revenue Bonds substantially identical to those on the part of Buyer contained in this Section 7.12. (h) The covenants and agreements on the part of Buyer contained in this Section 7.12 shall continue in effect so long as any of the Revenue Bonds, including any refunding bonds issued hereafter to refund any Revenue Bonds, shall remain outstanding. Seller shall notify Buyer promptly when there shall be no Revenue Bonds outstanding and, at the request of the Seller, the Buyer shall execute further documentation to provide that such covenants and agreements are also for the benefit of the trustee for the holders of any Revenue Bonds. (i) Notwithstanding any provision in this Agreement to the contrary, from and after the Closing Date, Seller agrees that it will remain primarily liable for, and promptly pay when due, all obligations to pay principal and interest under the Loan Agreements. SECTION 7.13 Compliance with Governmental Agreements. From and after the Closing Date, Buyer agrees that it will abide by, and comply with, all existing permit conditions, provisions in the Certificates of Public Convenience and Necessity issued to the Seller by any PSC, and any other agreements or arrangements between the Seller and the District of Columbia or the State of Maryland (or any political subdivision thereof), including provisions or agreements relating to environmental compliance and mitigation. SECTION 7.14 PJM; MAAC. From and after the Closing Date, Buyer shall maintain membership in good standing in PJM and MAAC, and shall submit to the governance of the independent system operator established and administered under the PJM Agreement. SECTION 7.15 Trade Names. Seller shall not object to the use by Buyer of any trade names, trademarks, service marks or logos (and any rights to and in the same, including any right to use the same) which are not Retained Assets in 41 connection with its ownership and operation of the Generating Facilities. In addition, Buyer hereby acknowledges the right of Seller to use such trade names, trademarks, service marks or logos in connection with Seller's ownership and operation of the Retained Assets. SECTION 7.16 Enforcement of Retained Rights. Notwithstanding any provision of the Agreement to the contrary, Seller shall be entitled to enforce all rights and remedies in respect of the Retained Rights in accordance with the terms and conditions of each PPA, including termination of interconnection and related services to the applicable Power Seller. SECTION 7.17 Conduct of Business Relating to PPAs. Prior to Closing, except as expressly contemplated by this Agreement, required by the terms of any PPA or consented to by Buyer (which shall not be unreasonably withheld), Seller shall not amend, modify or extend any PPA, or waive performance of the obligations of any party thereunder, which, would have a material adverse effect on the rights of Buyer hereunder. ARTICLE VIII Conditions SECTION 8.1 Conditions Precedent to Each Party's Obligation To Effect the Purchase and Sale. The respective obligations of each Party to effect the purchase and sale of the Auctioned Assets shall be subject to the satisfaction or waiver by such Party on or prior to the Closing Date of the following conditions: (a) all Seller Required Regulatory Approvals and Buyer Required Regulatory Approvals shall have been obtained by Seller and Buyer, as the case may be, and all conditions to effectiveness prescribed therein or otherwise by law, regulation or order shall have been satisfied by such Parties; provided, that the Seller will not be required to close if any Seller Required Regulatory Approval contains terms and conditions that create a Regulatory Material Adverse Effect; (b) no preliminary or permanent injunction or other order or decree by any Federal or state court of competent jurisdiction and no statute or regulation enacted by any Governmental Authority prohibiting the consummation of the purchase and sale of the Auctioned Assets (collectively, "Restraints") shall be in effect; and (c) the execution and delivery of each Ancillary Agreement, by each Party thereto. 42 SECTION 8.2 Conditions Precedent to Obligation of Buyer To Effect the Purchase and Sale. The obligation of Buyer to effect the purchase and sale of the Auctioned Assets contemplated by this Agreement shall be subject to the satisfaction or waiver by Buyer on or prior to the Closing Date of the following additional conditions: (a) Seller shall have performed its covenants and agreements contained in this Agreement which are required to be performed on or prior to the Closing Date, except where the failure to perform such covenants and agreements would not, individually or in the aggregate, create a Material Adverse Effect; (b) the representations and warranties of Seller which are set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to "materiality" or "Material Adverse Effect" set forth therein) would not, individually or in the aggregate, create a Material Adverse Effect; (c) Buyer shall have received a certificate from an authorized officer of Seller, dated the Closing Date, to the effect that, to the best of such officer's Knowledge, the conditions set forth in Section 8.2(a) and (b) have been satisfied; (d) all material Permits and Environmental Permits required for Buyer to conduct the business and operations of the Auctioned Assets as currently conducted shall have been transferred or will be transferable to Buyer, or shall have been obtained or will be obtained by Buyer, except where the failure to obtain such material Permits or Environmental Permits will not have, individually or in the aggregate, a Material Adverse Effect; (e) Buyer shall have received (i) the deeds of conveyance substantially in the form of Exhibit J, and (ii) an opinion from Dickstein Shapiro Morin & Oshinsky LLP or other counsel reasonably acceptable to Buyer, dated the Closing Date, and reasonably satisfactory in form and substance to Buyer covering the matters set forth in Exhibit K; (f) Buyer shall have received a Foreign Investment in Real Property Tax Act Certification and Affidavit, executed by Seller; and (g) Seller shall have delivered to Buyer all such other instruments as shall, in the reasonable opinion of the Buyer and its counsel, be (i) necessary to transfer to 43 Buyer the Auctioned Assets in accordance with this Agreement or (ii) required to consummate the transactions contemplated by this Agreement. SECTION 8.3 Conditions Precedent to Obligation of Seller To Effect the Purchase and Sale. The obligation of Seller to effect the purchase and the sale of the Auctioned Assets contemplated by this Agreement shall be subject to the satisfaction or waiver by Seller on or prior to the Closing Date of the following additional conditions: (a) Buyer shall have performed its covenants and agreements contained in this Agreement which are required to be performed on or prior to the Closing Date, except where the failure to perform such covenants and agreements would not, individually or in the aggregate, create a Buyer Material Adverse Effect; (b) the representations and warranties of Buyer which are set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to "materiality" or "Buyer Material Adverse Effect" set forth therein) would not, individually or in the aggregate, create a Buyer Material Adverse Effect; (c) Seller shall have received a certificate from an authorized officer of Buyer, dated the Closing Date, to the effect that, to the best of such officer's Knowledge, the conditions set forth in Section 8.3(a) and (b) have been satisfied; (d) Seller shall have received an opinion from Troutman Sanders LLP or other counsel reasonably acceptable to Seller, dated the Closing Date, and reasonably satisfactory in form and substance to Seller covering the matters set forth in Exhibit L; (e) Buyer shall have provided evidence in form and substance reasonably satisfactory to Seller of compliance by Buyer with its obligations under Article IX (including, without limitation, a certificate from an authorized officer of Buyer, dated the Closing Date, which identifies the Non-Union Employees who did not receive from the Buyer a Qualified Offer pursuant to Section 9.1(d)); (f) If a Guarantee Agreement has been entered into: (i) the Guarantee Agreement shall be in full force and effect; 44 (ii) the Guarantor shall have performed in all material respects its covenants and agreements contained in the Guarantee Agreement which are required to be performed on or prior to the Closing Date; (iii) the representations and warranties of the Guarantor which are set forth in the Guarantee Agreement shall be true and correct as of the date of the Guarantee Agreement and as of the Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to "materiality" or "Guarantor Material Adverse Effect" set forth therein) would not, individually or in the aggregate, create a Guarantor Material Adverse Effect (as defined therein); (iv) Seller shall have received a certificate from an authorized officer of the Guarantor, dated the Closing Date, to the effect that, to the best of such officer's Knowledge, the conditions set forth in Sections 8.3(f)(ii) and (iii) have been satisfied; (v) Seller shall have received an opinion from Troutman Sanders LLP or other counsel reasonably acceptable to Seller, dated the Closing Date, and reasonably satisfactory in form and substance to Seller covering the matters set forth in Exhibit M. (g) Buyer shall have delivered to Seller all such other instruments as shall, in the reasonable opinion of the Seller and its counsel, be (i) necessary for the Buyer to assume the Assumed Obligations in accordance with this Agreement or (ii) required to consummate the transactions contemplated by the Agreement. (h) Panda shall have consented to a Novation of the Panda PPA satisfactory in form and substance to Seller, or Seller shall have received an order from the MDPSC determining that the transactions contemplated by Section II of Schedule 2.4 hereto with respect to the Panda PPA do not violate the Panda PPA, which order shall have become final and non-appealable, and which is satisfactory in form and substance to Seller. 45 ARTICLE IX Employee Matters SECTION 9.1 Employee Matters. (a) Buyer shall offer employment, effective as of the Closing Date, to all employees of Seller employed at the Generating Facilities and the Support Operations as of the Closing Date who are covered by the IBEW Collective Bargaining Agreement, including those employees absent from active service due to illness or leave of absence, whether paid or unpaid, other than those employees on long term disability as of the Closing Date who have received written notice from Seller approving requests for long term disability as of the Closing Date (the "Union Employees"), pursuant to and in accordance with the IBEW Collective Bargaining Agreement and applicable law. Each Union Employee who becomes employed by Buyer pursuant to this Section 9.1(a) is referred to herein as a "Transferred Union Employee". (b) Any Union Employee who refuses an offer of employment from Buyer made in accordance with the terms of this Section 9.1 shall be treated by Seller as a terminated employee and shall not be entitled to any severance or other benefits from Buyer in connection therewith. (c) Buyer shall provide benefits to Transferred Union Employees substantially equivalent to those provided under the IBEW Collective Bargaining Agreement. In doing so, Buyer may use different providers, establish its own benefit plans or use its existing plans. There shall be no duplication of benefits. Buyer shall recognize service with Seller for purposes of eligibility and vesting and benefit calculations in any benefit plan, program, or fringe benefit arrangement. For purposes of health care coverage, Buyer shall waive all limitations regarding pre-existing condition exclusions, actively at work exclusions and waiting periods for Transferred Union Employees. During the calendar year in which Closing occurs, all health care expenses incurred by Transferred Union Employees that were qualified to be taken into account for purposes of satisfying any deductible or out-of-pocket limit under Seller's health care plans shall be taken into account for purposes of satisfying any deductible or out-of-pocket limit under Buyer's health care plans for such calendar year. Buyer shall give all Transferred Union Employees full credit for all vacation, sick leave or comp time benefits accrued and not used as of the Closing. The Buyer shall provide substantially equivalent retiree medical benefits to the Transferred Union Employees only with no duplication of benefits and such benefits shall be subject to any limitations in existing plan documents and the IBEW Collective Bargaining Agreement and related documents. 46 (d) Buyer may, but shall not be required to, offer employment, effective as of the Closing Date, to employees of Seller (other than Union Employees) who are (i) employed at the Generating Facilities or (ii) corporate support personnel engaged in the Support Operations (collectively, the "Non-Union Employees" and, together with Union Employees, "Employees"). Within sixty (60) days after the date hereof, Buyer shall notify Seller as to the identity of those Non-Union Employees to whom it intends to offer employment, provided that, during such period, Seller shall, upon reasonable notice and to the extent not disruptive to the operation of the Auctioned Assets, provide Buyer with reasonable access to Non-Union Employees and, to the extent permitted by applicable law, their respective Transferred Employee Records. In the event that Buyer does not make a Qualified Offer to any Non-Union Employees, the Buyer shall be solely responsible for the payment to such Non-Union Employees of all severance costs payable under the Seller's 1998 Reorganization Severance Plan (treating the consummation of the sale of the Auctioned Assets hereunder as an event entitling such Non-Union Employee to severance benefits thereunder). The Buyer shall have no other obligations with respect to any Non-Union Employees to which it does not make a Qualified Offer. Each Non-Union Employee who becomes employed by Buyer pursuant to this Section 9.1(d) shall be referred to herein as a "Transferred Non-Union Employee" and, together with Transferred Union Employees, the "Transferred Employees." Any offer of employment to a Non-Union Employee that satisfies all of the following requirements is referred to herein as a "Qualified Offer": (1) Buyer shall pay and provide such Transferred Non-Union Employee annual compensation, bonus and other incentive opportunities (the "Total Cash Compensation") at a rate substantially equivalent to such Transferred Non-Union Employee's Total Cash Compensation in the most recent calendar year ending prior to the Closing (which shall include cash compensation in respect of such calendar year paid or payable after such calendar year). (2) The location of such Transferred Non-Union Employee's workplace must be within a fifty (50) mile radius of the District of Columbia metropolitan area; provided, however, that if any Non-Union Employee's commute to the Buyer's workplace following the Closing will be increased by more than fifty (50) miles (as compared to the number of miles traveled by such Non-Union Employee to the Seller's work place immediately prior to the Closing), the Buyer shall be required to pay such Non-Union Employee a $3,500 relocation allowance. (e) Buyer shall provide benefits to Transferred Non-Union Employees substantially equivalent to those provided by Seller as of the Closing Date. In doing so, Buyer may use different providers, establish its own benefit plans or use its existing plans. There shall be no duplication of benefits. Buyer shall recognize service with Seller for purposes of eligibility and vesting and benefit calculations in 47 any benefit plan, program, or fringe benefit arrangement. For purposes of health care coverage, Buyer shall waive all limitations regarding pre-existing condition exclusions, actively at work exclusions and waiting periods for Transferred Non-Union Employees. During the calendar year in which Closing occurs, all health care expenses incurred by Transferred Non-Union Employees that were qualified to be taken into account for purposes of satisfying any deductible or out-of-pocket limit under Seller's health care plans shall be taken into account for purposes of satisfying any deductible or out-of-pocket limit under Buyer's health care plans for such calendar year. Buyer shall give all Transferred Non-Union Employees full credit for all vacation, sick leave or comp time benefits accrued and not used as of the Closing. The Buyer shall provide substantially equivalent retiree medical benefits to the Transferred Non-Union Employees only with no duplication of benefits and such benefits shall be subject to any limitations in existing plan documents. SECTION 9.2 Pension Plans. With respect to each Transferred Employee's accrued benefit (based on service and compensation as of the Closing Date) (the "Closing Date Benefits"), Seller shall, effective as of the Closing Date, amend the General Retirement Plan ("Seller's Pension Plan") to (i) recognize service with Buyer for purposes of vesting the Closing Date Benefits in such Seller's Pension Plan; (ii) recognize service with Buyer toward eligibility for receipt of subsidized early retirement and optional benefit forms with respect to the Closing Date Benefits under Seller's Pension Plan; (iii) provide that retirement from Buyer's service shall be deemed retirement from active employment with Seller for purposes of eligibility for receipt of subsidized early retirement and optional benefit forms with respect to the Closing Date Benefits under Seller's Pension Plan; and (iv) provide that Closing Date Benefits cannot commence until the earlier of such Transferred Employee's actual retirement from Buyer's employment or attainment of age 65. The pension plan of Buyer ("Buyer's Pension Plan") shall recognize all prior service with Seller for purposes of eligibility for participation, vesting, early retirement subsidies and benefit accrual for Transferred Employees, and may offset the Closing Date Benefits from benefit accruals thereunder. Buyer and Seller shall provide each other with such records and information as may be necessary or appropriate to carry out their respective obligations under this Section 9.2 for the purposes of administration of Buyer's Pension Plan and Seller's Pension Plan. SECTION 9.3 Buyer's Savings Plan. As soon as practicable, and in any event within 90 days after the Closing Date, Buyer shall establish a defined contribution pension plan (or plans) and trust (or trusts) intended to qualify under Sections 401(a) and 501(a) of the Code or amend an existing plan or plans satisfying such requirements (such plan or plans referred to as "Buyer's Savings Plan") in which all Transferred Employees shall be eligible to participate as of the later of the Closing Date or the Buyer's Savings Plan's effective date. Buyer's Savings Plan shall provide for deferral options and employer matching contributions 48 with respect to the Transferred Employees who are participants (or eligible to be participants) in the Potomac Electric Power Company Savings Plan ("Seller's Savings Plan") as of the Closing Date (such employees, the "Transferred Savings Employees") that are no less favorable than those provided immediately prior to the Closing Date to the Transferred Savings Employees under Seller's Savings Plans (including an opportunity to make up for any lost deferrals and/or employer matching contributions that were unavailable because of a delay between the Closing Date and the effective date of Buyer's Savings Plan). Contributions to the Seller's Savings Plans with respect to the Transferred Savings Employees shall cease effective as of the Closing Date. Each Transferred Savings Employee shall be afforded the option of transferring his or her account balance into the Buyer's Savings Plan, including any outstanding loan balances attributable to such accounts; provided, however, that if Seller is able to obtain a favorable ruling from the Internal Revenue Service to the effect that the consummation of the transactions contemplated hereby shall constitute a sale of substantially all of the assets used in a trade or business within the meaning of Section 401(k)(10) of the Code, or that there has been a separation from service as a non-continuation of the same trade or business within the meaning of Section 401(k)(2)(B)(i)(I) of the Code, each Transferred Savings Employee shall be afforded the option of maintaining his or her account balance under Seller's Savings Plan, rolling over his or her account balance, including any outstanding loan balances attributable to such accounts into the Buyer's Savings Plan, rolling over his or her account balance into an individual retirement account or cashing in his or her account balance (subject to applicable withholding taxes and penalties). Any such transfers or rollovers shall satisfy the requirements of Section 414(l) of the Code and Section 208 of ERISA and shall be in the form of cash or other property, as Seller and Buyer shall mutually agree prior to such transfer or rollover (which Buyer agrees shall include promissory notes evidencing loans from Seller's Savings Plan to Transferred Savings Employees that are outstanding on the Closing Date). Prior to such transfer or rollover, Buyer will provide Seller with such documents and other information as Seller shall reasonably request to assure itself that Buyer's Savings Plan and the trust or trusts established pursuant thereto (i) provide for voluntary participant after-tax contributions and (ii) contain participant loan provisions and procedures necessary to effect the orderly transfer of participant loan balances associated with the transfer or rollover. In the event that a Transferred Savings Employee shall elect to leave his or her account balance in Seller's Savings Plans, Buyer shall cooperate with Seller in providing that any outstanding loan attributable to such account balance shall be repaid through payroll deductions from Buyer's payroll. Upon such transfer, Buyer's Savings Plan shall assume all liabilities and obligations whatsoever with respect to all amounts transferred from Seller's Savings Plan to Buyer's Savings Plan in respect of the Transferred Savings Employees and Seller and its Affiliates and Seller's Savings Plan shall be relieved of all such liabilities and obligations. Notwithstanding anything in this Article IX to the contrary, no such transfer or rollover shall take place unless and until Seller has received written evidence of the adoption of Buyer's Savings Plan 49 and the trust (or trusts) thereunder by Buyer and either (A) a copy of a favorable determination letter issued by the Internal Revenue Service and satisfactory to Seller's counsel with respect to Buyer's Savings Plan or (B) an opinion, satisfactory to Seller's counsel, of Buyer's counsel to the effect that the terms of Buyer's Savings Plan and its related trust or trusts qualify under Sections 401(a) and 501(a) of the Code. Buyer and Seller shall provide each other with such records and information as may be necessary or appropriate to carry out their obligations under this Section 9.3 for the purposes of administration of Buyer's Savings Plan, and they shall cooperate in the filing of documents required by the transactions described herein. SECTION 9.4 Severance Liabilities. Buyer shall provide severance benefits (i) as contemplated by Schedule 1.1(c) attached hereto, and (ii) as set forth in Seller's 1998 Reorganization Severance Plan (treating the consummation of the sale of the Auctioned Assets hereunder and the events specified in this Section as events entitling such Non-Union Employee to severance benefits thereunder) to any Transferred Non-Union Employee (i) who, within the 12-month period immediately following the Closing Date, is terminated by Buyer or any of its Affiliates other than for cause (as defined on Schedule 1.1(c)) or (ii) with respect to such Persons who have received and accepted Qualifying Offers, whose terms and conditions of employment with Buyer or any of its Affiliates are changed during the 12-month period immediately following the Closing Date, such that such terms and conditions fail to satisfy all of the requirements set forth in Section 9.1(d) above. SECTION 9.5 COBRA. Buyer shall provide notice of and the opportunity to purchase continuation coverage as required by COBRA to any dependent or former dependent of a Transferred Union Employee or Transferred Non-Union Employee who incurs a "qualifying event" (as such term is defined in COBRA) on or after the Closing Date, or who incurs a "qualifying event" prior to the Closing Date (other than a termination of employment or death of the employee) as to which notice is not provided to Seller or Buyer until the Closing Date or thereafter. SECTION 9.6 WARN Act. Buyer shall be responsible, with respect to the Auctioned Assets, for performing and disclosing all requirements under the WARN Act and applicable state and local laws and regulations for the notification of its employees of any "employment loss" within the meaning of the WARN Act which occurs following the Closing Date. 50 ARTICLE X Indemnification and Dispute Resolution SECTION 10.1 Indemnification. (a) Seller will indemnify and hold harmless Buyer and its Affiliates and their respective directors, officers, employees and agents (collectively with Buyer and its Affiliates, the "Buyer Indemnitees") from and against any and all claims, demands or suits by any person, and all losses, liabilities, damages, obligations, payments, costs and expenses (including reasonable legal fees and expenses and including costs and expenses incurred in connection with investigations and settlement proceedings) (each, an "Indemnifiable Loss"), as incurred, asserted against or suffered by any Buyer Indemnitee relating to, resulting from or arising out of: (i) any breach by Seller of any covenant or agreement of Seller contained in this Agreement or, prior to their expiration in accordance with Section 12.3, the representations and warranties contained in Sections 5.1, 5.2, 5.3 and 5.15 hereof; (ii) any breach by Seller of its obligations under Section 7.12(i) hereof; (iii) the Retained Liabilities; (iv) the Panda Litigation; or (v) any breach by Seller of any Ancillary Agreement. (b) Buyer will indemnify and hold harmless Seller and its Affiliates and their respective directors, officers, trustees, employees and agents (collectively with Seller and its Affiliates, the "Seller Indemnitees") from and against any and all Indemnifiable Losses, as incurred, asserted against or suffered by any Seller Indemnitee relating to, resulting from or arising out of: (i) any breach by Buyer of any covenant or agreement of Buyer contained in this Agreement or, prior to their expiration in accordance with Section 12.3, the representations and warranties contained in Sections 6.1, 6.2, 6.3 and 6.5 hereof; 51 (ii) the Assumed Obligations (other than any Indemnifiable Losses resulting from any breach by Seller of its obligations under Section 7.12(i) hereof); (iii) any obligation resulting from any action or inaction of Buyer (A) under any Contract or warranty pursuant to Section 2.4(b) or Schedule 2.4 attached hereto (whether acting as principal or representative and agent for Seller or otherwise) or (B) pursuant to any Transferable Permit in respect of which Seller remains the holder of record after the Closing Date pursuant to Section 7.3(c); (iv) any transfer, sales or excise tax obligations imposed on the Seller arising from the sale or transfer of the Auctioned Assets; or (v) any breach by Buyer of any Ancillary Agreement. (c) The amount of any Indemnifiable Loss shall be reduced to the extent that the relevant Buyer Indemnitee or Seller Indemnitee (each, an "Indemnitee") receives any insurance proceeds with respect to an Indemnifiable Loss and shall be (i) increased to take account of any Tax Cost incurred by the Indemnitee arising from the receipt of indemnity payments hereunder and (ii) reduced to take account of any Tax Benefit realized by the Indemnitee arising from the incurrence or payment of any such Indemnifiable Loss. If the amount of any Indemnifiable Loss, at any time subsequent to the making of an indemnity payment in respect thereof, is reduced by recovery, settlement or otherwise under or pursuant to any insurance coverage, or pursuant to any claim, recovery, settlement or payment by or against any other person, the amount of such reduction, less any costs, expenses or premiums incurred in connection therewith, will promptly be repaid by the Indemnitee to the Party required to provide indemnification hereunder (the "Indemnifying Party") with respect to such Indemnifiable Loss. (d) To the fullest extent permitted by law, neither Party nor any Buyer Indemnitee or any Seller Indemnitee shall be liable to the other Party or any other Buyer Indemnitee or Seller Indemnitee for any claims, demands or suits for consequential, incidental, special, exemplary, punitive, indirect or multiple damages connected with or resulting from any breach after the Closing Date of this Agreement or the Ancillary Agreements (other than breach of this Article X or as otherwise expressly set forth in any Ancillary Agreement), or any actions undertaken in connection with or related hereto or thereto, including any such damages which are based upon breach of contract, tort (including negligence and 52 misrepresentation), breach of warranty, strict liability, statute, operation of law or any other theory of recovery. (e) The rights and remedies of Seller and Buyer under this Article X are, solely as between Seller and Buyer, exclusive and in lieu of any and all other rights and remedies which Seller and Buyer may have under this Agreement, the Ancillary Agreements (except as otherwise expressly set forth in any Ancillary Agreement) or otherwise for monetary relief with respect to (i) any breach of, or failure to perform, any covenant or agreement set forth in this Agreement or the Ancillary Agreements by Seller or Buyer, (ii) any breach of any representation or warranty by Seller or Buyer, (iii) the Assumed Obligations or the Retained Liabilities, and (iv) any obligation in respect of Section 2.4 or Section 7.3. Each Party agrees that the previous sentence shall not limit or otherwise affect any non-monetary right or remedy which Party may have under this Agreement or the Ancillary Agreements or otherwise limit or affect either Party's right to seek equitable relief, including the remedy of specific performance. (f) Buyer and Seller agree that, notwithstanding Section 10.1(e), each Party shall retain, subject to the other provisions of this Agreement, including Sections 10.1(d) and 12.3, all remedies at law or in equity with respect to (i) fraud or willful or intentional breaches of this Agreement or the Ancillary Agreements and (ii) gross negligence or willful or wanton acts or omissions to act of any Indemnitee (or any contractor or subcontractor thereof) on or after the Closing Date. (g) Seller and Buyer agree that neither Party shall be responsible to the other Party for any Indemnifiable Loss (relating to the breach of representations and warranties made by such Party hereunder) pursuant to Section 10.1(a)(i) or Section 10.1(b)(i), as the case may be, unless and until the aggregate amount of such Party's Indemnifiable Losses exceeds $5,000,000. Notwithstanding the foregoing, the aggregate maximum liability of the Seller to indemnify the Buyer for Indemnifiable Losses (relating to the breach of representations and warranties made by the Seller hereunder) pursuant to Section 10(a)(i) shall not exceed an amount in excess of the Purchase Price paid by the Buyer to the Seller. SECTION 10.2 Third Party Claims Procedures. (a) If any Indemnitee receives notice of the assertion of any claim or of the commencement of any claim, action, or proceeding made or brought by any person who is not a Party or an Affiliate of a Party (a "Third Party Claim") with respect to which indemnification is to be sought from an Indemnifying Party, the Indemnitee will give such Indemnifying Party reasonably prompt written notice thereof, but in any event not later than 20 Business Days after the Indemnitee's receipt of notice of such Third Party Claim; provided, however, that a failure to give 53 timely notice will not affect the rights or obligations of any Indemnitee except if, and only to the extent that, as a result of such failure, the Indemnifying Party was actually prejudiced. Such notice shall describe the nature of the Third Party Claim in reasonable detail and will indicate the estimated amount, if practicable, of the Indemnifiable Loss that has been or may be sustained by the Indemnitee. (b) If a Third Party Claim is made against an Indemnitee, the Indemnifying Party will be entitled to participate in the defense thereof and, if it so chooses, to assume the defense thereof with counsel selected by the Indemnifying Party; provided, however, that such counsel is not reasonably objected to by the Indemnitee; and provided further that the Indemnifying Party first admits in writing its liability to the Indemnitee with respect to all material elements of such claim. Should the Indemnifying Party so elect to assume the defense of a Third Party Claim, the Indemnifying Party will not be liable to the Indemnitee for any legal expenses subsequently incurred by the Indemnitee in connection with the defense thereof. If the Indemnifying Party elects to assume the defense of a Third Party Claim, the Indemnitee will (i) cooperate in all reasonable respects with the Indemnifying Party in connection with such defense, (ii) not admit any liability with respect to, or settle, compromise or discharge, any Third Party Claim without the Indemnifying Party's prior written consent and (iii) agree to any settlement, compromise or discharge of a Third Party Claim which the Indemnifying Party may recommend and which by its terms obligates the Indemnifying Party to pay the full amount of the liability in connection with such Third Party Claim and releases the Indemnitee completely in connection with such Third Party Claim. In the event the Indemnifying Party shall assume the defense of any Third Party Claim, the Indemnitee shall be entitled to participate in (but not control) such defense with its own counsel at its own expense. If the Indemnifying Party does not assume the defense of any such Third Party Claim, the Indemnitee may defend the same in such manner as it may deem appropriate, including settling such claim or litigation after giving notice to the Indemnifying Party of the terms of the proposed settlement and the Indemnifying Party will promptly reimburse the Indemnitee upon written request. Anything contained in this Agreement to the contrary notwithstanding, no Indemnifying Party shall be entitled to assume the defense of any Third Party Claim if such Third Party Claim seeks an order, injunction or other equitable relief or relief for other than monetary damages against the Indemnitee which, if successful, would materially adversely affect the business of the Indemnitee. 54 ARTICLE XI Termination SECTION 11.1 Termination. (a) This Agreement may be terminated at any time prior to the Closing by an instrument in writing signed on behalf of each of the Parties. (b) This Agreement may be terminated by Seller or Buyer if the Closing shall not have occurred on or before the date that is 12 months from the date of this Agreement (the "Termination Date"); provided, however, that the right to terminate this Agreement pursuant to this Section 11.1(b) shall not be available (1) to any Party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date, or (2) to Buyer if the Seller has provided the Buyer with written notice of its election to postpone the Closing for up to an eighteen month period from the execution date of this Agreement in the event that all conditions precedent to Closing set forth in Article VIII have been satisfied except with respect to those conditions set forth in Section 8.1(a). (c) This Agreement may be terminated by either Seller or Buyer if any Restraint having any of the effects set forth in Section 8.1(b) shall be in effect and shall have become final and nonappealable; provided, however, that the Party seeking to terminate this Agreement pursuant to this Section 11.1(c) shall have used its reasonable best efforts to prevent the entry of and to remove such Restraint. (d) This Agreement may be terminated by the Party entitled to do so under the provisions of Section 7.11(b). ARTICLE XII Miscellaneous Provisions SECTION 12.1 Expenses. Except to the extent specifically provided herein, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be borne by the Party incurring such costs and expenses, whether or not the transactions contemplated hereby are consummated. 55 SECTION 12.2 Amendment and Modification; Extension; Waiver. This Agreement may be amended, modified or supplemented only by an instrument in writing signed on behalf of each of the Parties. Either Party may (i) extend the time for the performance of any of the obligations or other acts of the other Party, (ii) waive any inaccuracies in the representations and warranties of the other Party contained in this Agreement or (iii) waive compliance by the other Party with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a Party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such Party. The failure of a Party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. SECTION 12.3 No Survival of Representations or Warranties. Each and every representation and warranty contained in this Agreement, other than the representations and warranties contained in Sections 5.1, 5.2, 5.3 and 5.15 and 6.1, 6.2, 6.3 and 6.5 (which representations and warranties shall survive for 12 months from the Closing Date), shall expire with, and be terminated and extinguished by the Closing and no such representation or warranty shall survive the Closing Date. From and after the Closing Date, none of Seller, Buyer or any officer, director, trustee or Affiliate of any of them shall have any liability whatsoever with respect to any such representation or warranty. The expiration of the representations and warranties contained in Sections 5.1, 5.2, 5.3 and 5.15 and 6.1, 6.2, 6.3 and 6.5 shall not affect the Parties' obligations under Article X if the Indemnitee provided the Indemnifying Party with proper notice of the claim or event for which indemnification is sought prior to such expiration. SECTION 12.4 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given (as of the time of delivery or, in the case of a telecopied communication, of confirmation) if delivered personally, telecopied (which is confirmed) or sent by overnight courier (providing proof of delivery) to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice): if to Seller, to: Potomac Electric Power Company 1900 Pennsylvania Avenue, N.W. Washington, D.C. 20068 Telecopier: (202) 261-7889 Attention: William T. Torgerson, General Counsel 56 with a copy on or prior to the Closing Date to: Dickstein Shapiro Morin & Oshinsky LLP 2101 L Street, N.W. Washington, D.C. 20037 Telecopier: (202) 887-0689 Attention: Kenneth M. Simon, Esq. if to Buyer, to: Southern Energy, Inc. 900 Ashwood Parkway Suite 500 Atlanta, Georgia 30338-4780 Telecopier: (770) 821-6575 Attention: Anne Cleary with a copy on or prior to the Closing Date to: Troutman Sanders LLP 1300 I Street, NW Suite 500 East Washington, DC 20005 Telecopier: (202) 274-2994 Attention: Benjamin L. Israel, Esq. SECTION 12.5 Assignment; No Third Party Beneficiaries. (a) This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any Party, including by operation of law, without the prior written consent of the other Party, except (i) in the case of Seller (A) to an Affiliate of Seller or a third party in connection with the transfer of the Transmission System to such Affiliate or third party or (B) to a lending institution or trustee in connection with a pledge or granting of a security interest in all or any part of the Transmission System and this Agreement and (ii) in the case of Buyer (A) prior to the Closing, to one or more wholly-owned subsidiaries of Buyer or lending institutions or other institutional investors acting as lessor to Buyer or one or more wholly-owned subsidiaries of Buyer, so long as Buyer shall have duly executed and delivered the Guarantee Agreement and such assignment is for all of Buyer's rights, interests and obligations hereunder associated with the asset(s) subject to any such assignment, (B) to an Affiliate of Buyer in connection with the 57 transfer of all or part of the Auctioned Assets to such Affiliate and (C) to a lending institution or trustee in connection with a pledge or granting of a security interest in the Auctioned Assets and this Agreement; provided, however, that no assignment or transfer of rights or obligations by either Party shall relieve it from the full liabilities and the full financial responsibility, as provided for under this Agreement, unless and until the transferee or assignee shall agree in writing to assume such obligations and duties and the other Party has consented in writing to such assumption. (b) Nothing in this Agreement is intended to confer upon any other person except the Parties any rights or remedies hereunder or shall create any third party beneficiary rights in any person, including, with respect to continued or resumed employment, any employee or former employee of Seller (including any beneficiary or dependent thereof). No provision of this Agreement shall create any rights in any such persons in respect of any benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement except as expressly provided for thereunder. SECTION 12.6 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the District of Columbia (regardless of the laws that might otherwise govern under applicable principles of conflicts of law). SECTION 12.7 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. SECTION 12.8 Interpretation. When a reference is made in this Agreement to an Article, Section, Schedule or Exhibit, such reference shall be to an Article or Section of, or Schedule or Exhibit to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation" or equivalent words. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All terms defined in this Agreement shall have the defined meanings when used in the Ancillary Agreements and any certificate or other document made or delivered pursuant hereto or thereto unless otherwise defined therein. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any agreement, instrument, statute, regulation, rule or order defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument, statute, regulation, rule or order as from time to time 58 amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes, regulations, rules or orders) by succession of comparable successor statutes, regulations, rules or orders and references to all attachments thereto and instruments incorporated therein. References to a person are also to its permitted successors and assigns. Each Party acknowledges that it has been represented by counsel in connection with the review and execution of this Agreement and, accordingly, there shall be no presumption that this Agreement or any provision hereof be construed against the Party that drafted this Agreement. SECTION 12.9 Jurisdiction and Enforcement. (a) Each of the Parties irrevocably submits to the exclusive jurisdiction of (i) the Superior Court of the District of Columbia and (ii) the United States District Court for the District of Columbia, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each of the Parties agrees to commence any action, suit or proceeding relating hereto either in the United States District Court for the District of Columbia or, if such suit, action or proceeding may not be brought in such court for jurisdictional reasons, in the Superior Court of the District of Columbia. Each of the Parties further agrees that service of process, summons, notice or document by hand delivery or U.S. registered mail at the address specified for such Party in Section 12.4 (or such other address specified by such Party from time to time pursuant to Section 12.4) shall be effective service of process for any action, suit or proceeding brought against such Party in any such court. Each of the Parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the Superior Court of the District of Columbia and (ii) the United States District Court for the District of Columbia, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. (b) The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement or any Ancillary Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or any Ancillary Agreement and to enforce specifically the terms and provision of this Agreement or any Ancillary Agreement, this being in addition to any other remedy to which they are entitled at law or in equity. 59 SECTION 12.10 Entire Agreement. This Agreement, the Confidentiality Agreement and the Ancillary Agreements including the Exhibits, Schedules, documents, certificates and instruments referred to herein or therein and other contracts, agreements and instruments contemplated hereby or thereby, embody the entire agreement and understanding of the Parties in respect of the transactions contemplated by this Agreement. There are no restrictions, promises, representations, warranties, covenants or undertakings other than those expressly set forth or referred to herein or therein. This Agreement and the Ancillary Agreements supersede all prior agreements and understandings between the Parties with respect to the transactions contemplated by this Agreement other than the Confidentiality Agreement. SECTION 12.11 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. SECTION 12.12 Conflicts. Except as expressly otherwise provided herein or therein, in the event of any conflict or inconsistency between the terms of this Agreement and the terms of any Ancillary Agreement, the terms of this Agreement shall prevail. 60 IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be signed by their respective duly authorized officers as of the date first above written. POTOMAC ELECTRIC POWER COMPANY By: /s/ MARY SHARPE-HAYES ---------------------------------------- Name: Mary Sharpe-Hayes Title: Vice President SOUTHERN ENERGY, INC. By: /s/ ANNE CLEARY ---------------------------------------- Name: Anne Cleary Title: Vice President, Southern Energy North America, Inc., as authorized agent 61 Schedule 1.1 Definitions "Accountants" shall have the meaning set forth in Section 3.2(b). "Adjustment Amount" shall have the meaning set forth in Section 3.4. "Adjustment Date" shall have the meaning set forth in Section 3.2(c). "Adjustment Statement" shall have the meaning set forth in Section 3.2(a). "Affiliate" shall have the meaning set forth in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended. "Agreement" shall have the meaning set forth in the Preamble. "Allocation" shall have the meaning set forth in Section 3.3. "Ancillary Agreements" means the Potomac River Lease, the Local Area Support Agreement, the Transition Power Agreements, the Interconnection Agreements, the Assignment and Assumption Agreement, Bill of Sale, Guarantee Agreement, Operating Agreement, the deeds contemplated by Section 8.2(e)(i) and any other agreement to which Buyer and Seller are party and which is expressly identified by its terms as an Ancillary Agreement hereunder. "Applicable Law" shall have the meaning set forth in Section 3.3. "Ash Storage Sites" mean those certain ash storage sites of the Seller located in Charles County, Maryland, Prince George's County, Maryland, and Montgomery County, Maryland, as more fully described on Schedule 2.2(a)(iii) and Schedule 5.5(a) attached to the Agreement. "Assignment and Assumption Agreement" means that Assignment and Assumption Agreement, to be entered into at the Closing by Buyer and Seller, in substantially the form as Exhibit A attached to the Agreement. "Assumed Consent Order Obligations" shall have the meaning set forth in Section 2.3(a)(iv). 62 "Assumed Obligations" shall have the meaning set forth in Section 2.3(a). "Auctioned Assets" shall have the meaning set forth in Section 2.2(a). "Benefit Plans" shall have the meaning set forth in Section 5.12. "Bill of Sale" means that certain Bill of Sale, to be entered into at the Closing by Buyer (or Buyer's permitted assignees pursuant to Section 12.5(a)) and Seller, in substantially the form as Exhibit B attached to the Agreement. "Business Day" means any day other than Saturday, Sunday and any day which is a legal holiday or a day on which banking institutions in Washington, DC are authorized or required by law or other action of a Governmental Authority to close. "Buyer" shall have the meaning set forth in the Preamble to the Agreement. "Buyer Facilities" shall have the meaning given to such term in the Easements Agreement. "Buyer Indemnitees" shall have the meaning set forth in Section 10.1(a). "Buyer Material Adverse Effect" means any change or event which would have a material adverse effect on the ability of the Buyer to consummate the transactions contemplated by, and discharge its obligations under, the Agreement and the Ancillary Agreements. "Buyer Real Estate" shall have the meaning set forth in Section 2.2(a)(i). "Buyer Required Regulatory Approvals" shall have the meaning set forth in Section 6.3(b). "Buyer's Pension Plans" shall have the meaning set forth in Section 9.2. "Buyer's Savings Plan" shall have the meaning set forth in Section 9.3. "Chalk Point/Morgantown Fuel Pipeline" means the (i) 16" pipeline, including all components, between the Piney Point petroleum terminal and the Ryceville Pumping Station and (ii) the 12" pipelines, including all components, between the Ryceville Pumping Station and the Chalk Point Station 63 and Morgantown Station, as more fully described on Schedule 5.5(a) attached to the Agreement. "Chalk Point Station" means that certain coal, oil and gas-fueled generating facility of the Seller located on the Patuxent River in Aquasco, Maryland (excluding that certain combustion turbine and related assets owned by Southern Maryland Electric Cooperative, Inc.), as more fully described on Schedule 2.2(a)(iii) and Schedule 5.5(a) attached to the Agreement. "Closing" shall have the meaning set forth in Section 4.1. "Closing Adjustment Amount" shall have the meaning set forth in Section 3.2(c). "Closing Date" shall have the meaning set forth in Section 4.1. "Closing Date Benefits" shall have the meaning set forth in Section 9.2. "Closing Severance Expenses" shall have the meaning set forth in Section 2.3(a)(x). "Code" means the Internal Revenue Code of 1986, as amended. "Communications Equipment" means the equipment, systems, switches and lines used in connection with voice, data and other communications activities. "Conemaugh Interest" means the 9.72% undivided ownership interest held by Seller, as a tenant-in-common, in the Conemaugh Station, together with the Seller's undivided ownership interest in any related assets held in undivided ownership with the other Persons having an undivided ownership interest in the Conemaugh Station (except in the case of Seller's undivided ownership interest in the Conemaugh Switchyard and the Conemaugh Transmission Line). "Conemaugh Station" means that certain coal-fired generating facility located on the Conemaugh River in Indiana County, Pennsylvania. "Conemaugh Switchyard" means that certain 500kV switchyard, as described on Schedule 2.2(b)(i) attached to the Agreement. "Conemaugh Transmission Line" means that certain 500kV transmission line, as described on Schedule 2.2(b)(i) attached to the Agreement. 64 "Confidentiality Agreement" means the Confidentiality Agreement dated February 10, 2000 between Seller and Buyer. "Contracts" shall have the meaning set forth in Section 2.2(a)(iv). "DCPSC" means the Public Service Commission of the District of Columbia. "Dickerson Station" means that certain coal, oil and gas-fuel fired generating facility of the Seller located on the Potomac River near Dickerson, Maryland, as more fully described on Schedule 2.2(a)(iii) and Schedule 5.5(a) attached to the Agreement. "Disposed Items" shall have the meaning set forth in Section 2.3(a)(iii). "Easements Agreements" mean those certain Easements Agreements, to be entered into at the Closing by Buyer and Seller, in substantially the form as Exhibits C-1, C-2, C-3 and C-4 attached to the Agreement. "Emission Reduction Credits" means credits, in units that are established by the environmental regulatory agency with jurisdiction over the source or facility that has obtained the credits, resulting from a reduction in the emissions of air pollutants from an emitting source or facility (including, and to the extent allowable under applicable law, reductions from retirements, control of emissions beyond that required by applicable law and fuel switching), that: (i) have been certified by the Maryland Department of the Environment or the Virginia Department of Environmental Quality, as the case may be, as complying with the law and regulations of the State of Maryland or the Commonwealth of Virginia, as the case may be, governing the establishment of such credits; or (ii) have been certified by any other applicable regulatory authority as complying with the law and regulations governing the establishment of such credits. Emission Reduction Credits include certified air emissions reductions, as described above, regardless of whether the regulatory agency certifying such reductions designates such certified air emissions reductions by a name other than "emissions reduction credits", but do not include SO2 Allowances or Nox Allowances. "Employees" shall have the meaning set forth in Section 9.1(d). "Encumbrances" means any mortgages, pledges, liens, security interests, conditional and installment sale agreements, activity and use limitations, exceptions, conservation easements, rights-of-way, deed restrictions, encumbrances and charges of any kind. "Entitlements" means all rights of Seller to receive any capacity, energy, ancillary services and other benefits under any PPA. 65 "Environmental Laws" means all former, current and future Federal, state, local and foreign laws (including common law), treaties, regulations, rules, ordinances, codes, decrees, judgments, directives or orders (including consent orders) and Environmental Permits, in each case, relating to pollution or protection of the environment or natural resources, including laws relating to Releases or threatened Releases, or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, arrangement for disposal, transport, recycling or handling, of Hazardous Substances. "Environmental Liability" means all liabilities, obligations, damages, losses, claims, actions, suits, judgments, orders, fines, penalties, fees, expenses and costs, including: (i) remediation costs, engineering costs, environmental consultant fees, laboratory fees, permitting fees, investigation costs and defense costs and attorneys' fees and expenses; (ii) any claims, demands and causes of action relating to or resulting from any personal injury (including wrongful death, pain, suffering and loss of consortium), property damage (real or personal) (including nuisance, trespass and diminution of value) or natural resource damage; and (iii) any penalties, fines or costs associated with the failure to comply with any Environmental Law. "Environmental Permits" means the permits, licenses, consents, approvals and other governmental authorizations with respect to Environmental Laws relating primarily to the power generation operations of the Generating Facilities. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" shall have the meaning set forth in Section 5.12. "Estimated Non-Fuel Related Adjustment Amount" shall have the meaning set forth in Section 4.2(b). "Estimated Purchase Price" shall have the meaning set forth in Section 4.2. "Exempt Facilities" means those certain facilities included in the Auctioned Assets which are listed on Schedule 7.12 attached to the Agreement. "FERC" means the Federal Energy Regulatory Commission. "Filed Seller SEC Documents" means the reports, schedules, forms, statements and other documents filed by Seller with the Securities and Exchange Commission, and publicly available prior to the date of the Agreement. "Final Allocation" shall have the meaning set forth in Section 3.3. 66 "Final Fuel Related Adjustment Amount" shall have the meaning set forth in Section 3.2(a). "Final Non-Fuel Related Adjustment Amount" shall have the meaning set forth in Section 3.2(a). "GAAP" shall have the meaning set forth in Section 1.2. "Generating Facilities" means the Generating Plants and related facilities (including the Chalk Point/Morgantown Fuel Pipeline, the Ryceville Pumping Station, the Production Service Center, and the Ash Storage Sites), as more fully described on Schedule 2.2(a)(iii) and Schedule 5.5(a) attached to the Agreement. "Generating Plants" means the following power generating plants of the Seller: the Potomac River Station; the Dickerson Station; the Chalk Point Station; and the Morgantown Station. "Good Utility Practice" means any of the applicable practices, methods and acts: (i) required by FERC, NERC, MAAC, PJM Interconnection LLC, the PJM System Operator, or the successor of any of them, whether or not the Party whose conduct is at issue is a member thereof; (ii) required by applicable law or regulations; (iii) required by the Pepco Interconnection Standards or the policies and standards of the Seller relating to emergency operations; (iv) otherwise engaged in or approved by a significant portion of the electric utility industry during the relevant time period; which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with law, regulation, good business practices, reliability, safety, and expedition. Good Utility Practice is not intended to be limited to the optimum practice, method, or act to the exclusion of all others, but rather to be acceptable practices, methods, or acts generally accepted in the region. 67 "Governmental Authority" means any court, administrative or regulatory agency or commission or other governmental entity or instrumentality, domestic, foreign or supranational or any department thereof. "Greenhouse Gas Emission Reduction Credits" mean with respect to a Federal or state law or regulation that imposes, or may at any time after the Closing Date impose, a quantitative limitation on greenhouse gas emissions, or taxes such emissions, an authorization to emit a unit of greenhouse gases or a credit against such quantitative limit or taxes with respect to recognized reductions in greenhouse gases, where greenhouse gases include carbon dioxide, methane, nitrous oxide, hydrofluorcarbons, perfluorocarbons, and/or sulfur hexafluoride. "Guarantee Agreement" means the Guarantee Agreement to be entered into at Closing by Guarantor and Seller, substantially in the form of Exhibit D attached to the Agreement. "Guarantor" means any credit-worthy entity, acceptable to Seller, which agrees to provide an unconditional guarantee to Seller of the full and punctual payment of Buyer's obligations hereunder and under the Ancillary Agreements. "Hazardous Substances" means (i) any petrochemical or petroleum products, crude oil or any fraction thereof, ash, radioactive materials, radon gas, asbestos in any form, urea formaldehyde foam insulation or polychlorinated biphenyls, (ii) any chemicals, materials, substances or wastes defined as, included in, or that are alleged or determined by any Person or Governmental Authority to be included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "restricted hazardous materials," "extremely hazardous substances," "toxic substances," "PCBs," "contaminants," "asbestos" or "pollutants" or similar term in any Environmental Law, (iii) any other chemical, material, substance or waste which is prohibited, limited or regulated by any Environmental Law, or (iv) any noise, electromagnetic radiation, and any other substance or energy which causes or is alleged to cause personal injury (including wrongful death, pain, suffering and loss of consortium) or property damage (including nuisance, trespass and diminution of value). "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "IBEW" means Local Union #1900 of the International Brotherhood of Electrical Workers. "IBEW Collective Bargaining Agreement" means that certain Collective Bargaining Agreement, between the Seller and the IBEW, effective December 8, 1998, as amended from time to time. 68 "Income Tax" means any Federal, state, local or foreign Tax or surtax (i) based upon, measured by or calculated with respect to income, profits or receipts or (ii) based upon, measured by or calculated with respect to multiple bases (including corporate franchise taxes) if one or more of the bases on which such Tax may be based, measured by or calculated with respect to, is described in clause (i), in each case, together with any interest, penalties, or additions to such Tax. "Indemnifiable Loss" shall have the meaning set forth in Section 10.1(a). "Indemnifying Party" shall have the meaning set forth in Section 10.1(c). "Indemnitee" shall have the meaning set forth in Section 10.01(c). "Information Memorandum" means the Information Memoranda, prepared on behalf of the Seller, describing the Generating Facilities and the PPAs, and the materials delivered with such Information Memoranda, as such Information Memoranda and such materials may have been amended or supplemented. "Interconnection Agreements" means those certain Interconnection Agreements, to be entered into at the Closing by Seller and Buyer, substantially in the form of Exhibits E-1, E-2, E-3 and E-4 attached to the Agreement. "Interconnection Facilities" shall have the meaning given to such term in the Interconnection Agreements. "Interconnection Services" shall have the meaning set forth in the Interconnection Agreements. "Inventory Survey" shall have the meaning set forth in Section 3.2(a). "Knowledge" means the actual knowledge of the directors and executive officers of the specified Person, which directors and executive officers are charged with the responsibility for the particular function as of the date of the Agreement, or with respect to any certificate delivered pursuant to the Agreement, the date of delivery of such certificate. "Loan Agreements" shall have the meaning set forth in Section 2.3(a)(xii). "Local Area Support Agreement" means that Local Area Support Agreement, to be entered into at Closing by Seller and Buyer, substantially in the form of Exhibit F attached to the Agreement. 69 "MAAC" means the Mid-Atlantic Area Council. "Material Adverse Effect" means any change, or effect on the Auctioned Assets, that, individually or in the aggregate, causes the value of the Auctioned Assets to decrease by more than ten percent (10%) as compared to the value of the Auctioned Assets immediately prior to the occurrence of such change or effect, other than (i) any change or effect resulting from changes in the international, national, regional or local wholesale or retail energy, capacity or ancillary services electric power markets, (ii) any change or effect resulting from changes in the international, national, regional or local markets for fuel, (iii) any change or effect resulting from changes in the national, regional or local electric transmission systems, (iv) any change or effect resulting from any bid cap, price limitation, market power mitigation measure, or other regulatory or legislative measure in respect of transmission services or the wholesale or retail energy, capacity or ancillary services markets adopted or approved by FERC, any PSC or any other Governmental Authority or proposed by any person, (v) any change or effect resulting from any regulation, rule, procedure or order adopted or proposed by or with respect to, or related to, the PJM, (vi) any change or effect resulting from any action or measure taken or adopted, or proposed to be taken or adopted, by any local, state, regional, national or international reliability organization, (vii) any change resulting from the failure of any Employees not to be employed by the Buyer following the Closing, (viii) any changes in law, or any judgments, orders or decrees that apply generally to similarly situated Persons, and (ix) any materially adverse change in or effect on the Auctioned Assets which is cured by Seller before the Closing Date. For purposes of determining the occurrence of a Material Adverse Effect, the initial value of the Auctioned Assets shall be the amount set forth in clause (a) of Section 3.1. "Material Contracts" shall have the meaning set forth in Section 5.7(a). "MDPSC" means the Public Service Commission of the State of Maryland. "Morgantown Station" means that certain coal/oil-fueled generating facility of the Seller located on the Potomac River near Newburg, Maryland, as more fully described on Schedule 2.2(a)(iii) and Schedule 5.5(a) attached to the Agreement. "NERC" means North American Electric Reliability Council or any successor thereto. "Non-Union Employees" shall have the meaning set forth in Section 9.1(d). "Novation" shall have the meaning set forth in Schedule 2.4 attached hereto. 70 "NOx Allowances" means nitrogen oxide allowances that have been allocated to the Seller for the Generating Plants by (i) the Maryland Department of the Environment under the State of Maryland's NOx Budget Program authorizing the emission of one ton of nitrogen oxide during the specified control period, or (ii) the Virginia Department of Environmental Quality under any budget program which may be established for the Commonwealth of Virginia. "OE PPA" collectively means those agreements identified in Item 4 of Section I of Schedule 2.2(a)(iv) attached hereto. "Off-Site" means any location except (i) the Auctioned Assets, the Potomac River Station Site, and (ii) any location to or under which Hazardous Substances present or disposed on the Auctioned Assets or the Potomac River Station Site have migrated or may migrate in the future. "Operating Agreement" means that certain Operating Agreement, to be entered into at the Closing by Buyer and Seller, in substantially the form as Exhibit G to the Agreement. "Operating Records" shall have the meaning set forth in Section 2.2(a)(viii). "Panda Litigation" means (i) the litigation captioned Potomac Electric Power Company v. Panda-Brandywine, L.P., No. S00-CV-1103, filed in the United States District Court for the District of Maryland, and (ii) the legal proceedings referenced in Schedule 5.8 hereto. "Panda PPA" means that certain PPA identified in Item 5 of Section I of Schedule 2.2(a)(vi) attached hereto. "Panda Release" shall have the meaning set forth in Section 3.4(a)(i). "Party" shall have the meaning set forth in the Preamble. "Pepco Interconnection Standards" means Pepco's Interconnection and Parallel Operating Guideline as amended from time to time. "Permits" means the permits, licenses, consents, approvals and other governmental authorizations (other than with respect to Environmental Laws) relating primarily to the power generation operations of the Generating Facilities. "Permitted Capital Expenditures" shall have the meaning set forth in Section 7.1(b)(viii). 71 "Permitted Exceptions" means (i) all exceptions, restrictions, easements, charges, rights-of-way and monetary and nonmonetary encumbrances which are set forth in any Permits or Environmental Permits, (ii) statutory liens for current taxes or assessments not yet due or delinquent or the validity of which is being contested in good faith by appropriate proceedings, (iii) mechanics', carriers', workers', repairers' and other similar liens arising or incurred in the ordinary course of business relating to obligations as to which there is no default on the part of Seller or the validity of which are being contested in good faith by appropriate proceedings, (iv) purchase money security interests in respect of personal property arising or incurred in the ordinary course of business, (v) zoning, entitlement, conservation restriction and other land use and environmental regulations by Governmental Authorities, (v) all matters disclosed on those surveys listed on Schedule 5.5(b) to the Agreement and any other facts that would be disclosed by an accurate survey and physical inspection of the Buyer Real Estate, (vi) Encumbrances, easements or other restrictions created pursuant to or contemplated by any Ancillary Agreement, (vii) Encumbrances of record or Encumbrances otherwise disclosed to Buyer in the Agreement or the Ancillary Agreements with respect thereto, (viii) restrictions and regulations imposed by the PJM, any Governmental Authority or any local, state, regional, national or international reliability council and (ix) such other Encumbrances or imperfections in or failure of title which would not, individually or in the aggregate, create a Material Adverse Effect. "Person" means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization or Governmental Authority. "PJM" means the Pennsylvania-New Jersey-Maryland interconnected power pool operated under the PJM Agreement and any successor thereto including any regional transmission operator, independent system operator, transco, or any other independent system administrator that possesses operational or planning control over the Transmission System. "PJM Agreement" means the Amended and Restated Operating Agreement of the PJM Interconnection LLC dated as of June 2, 1997. "PJM Control Area" shall mean the control area recognized by NERC as the PJM Control Area. "PJM Interconnection LLC" means the independent system operator of the PJM Control Area pursuant to the PJM Agreement and the PJM Tariff. "PJM System Operator" means the PJM energy control center staff responsible for central dispatch as provided in the PJM Agreement. 72 "PJM Tariff" means the PJM Open Access Transmission Tariff providing transmission service within the PJM Control Area, including schedules, appendices, or exhibits attached thereto, as in effect from time to time and as amended or modified. "Potomac River Lease" means that Generating Station Lease Agreement, to be entered into at the Closing by Seller and Buyer, substantially in the form of Exhibit H attached to the Agreement. "Potomac River Real Property" means that certain real property of the Seller (which includes the Potomac River Station Site) described on Schedule 5.5(a) attached to the Agreement. "Potomac River Station" means that certain coal-fueled generating facility of the Seller located on the Potomac River in Alexandria, Virginia, as more fully described on Schedule 2.2(a)(iii) and Schedule 5.5(a) attached to the Agreement. "Potomac River Station Site" means that portion of the Potomac River Real Property to be leased by the Seller to the Buyer pursuant to the terms of the Potomac River Lease. "PPAs" collectively means those power purchase agreements of the Seller listed in Section I of Schedule 2.2(a)(iv) attached to the Agreement. "Production Service Center" means that primary support facility of the Seller located near Washington, D.C., as more fully described on Schedule 2.2(a)(iii) and Schedule 5.5(a) attached to the Agreement. "Prorated Items" shall have the meaning set forth in Section 2.3(a)(viii). "Protective Relaying System" means the system relating to the Generating Facilities comprised of components collectively used to detect defective power system elements or other conditions of an abnormal nature, initiate appropriate control circuit action in response thereto and isolate the appropriate system elements in order to minimize damage to equipment and interruption to service. "PSC" means, either individually or collectively, the MDPSC, VCC, PUC and DCPSC. "Purchase Price" shall have the meaning set forth in Section 3.1. "PUC" means the Pennsylvania Utility Commission. 73 "Qualified Offer" shall have the meaning set forth in Section 9.1(d). "Regulatory Material Adverse Effect" shall occur where the Required Regulatory Approval contains terms and conditions that are materially adverse to the Seller taken as a whole. "Release" means any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture. "Required Regulatory Approvals" means with respect to a Party, any consent or approval of, filing with, or notice to, any Governmental Authority that is necessary for the execution and delivery of the Agreement and the Ancillary Agreements by such Party or the consummation thereby of the transactions contemplated hereby. "Restraints" shall have the meaning set forth in Section 8.1(b). "Retained Assets" shall have the meaning set forth in Section 2.2(b). "Retained Liabilities" shall have the meaning set forth in Section 2.3(b). "Retained Rights" shall have the meaning given to such term in Schedule 2.4 attached hereto. "Revenue Bonds" shall have the meaning set forth in Section 7.12(a)(i). "Revenue Meters" means all meters measuring demand, energy and reactive components, and all pulse isolation relays, pulse conversion relays and associated totalizing and remote access pulse recorder equipment, in each case, required to measure the transfer of energy between the Parties. "Ryceville Pumping Station" means that certain pumping station and all components located in Ryceville, Maryland, as more fully described on Schedule 2.2(a)(iii) and Schedule 5.5(a) attached to the Agreement. "Seller" shall have the meaning set forth in the Preamble to the Agreement. "Seller Facilities" means those facilities of the Seller which are described in the Easements Agreement. 74 "Seller Indemnitees" shall have the meaning set forth in Section 10.1(b). "Seller Real Estate" means all real property and leaseholds or other interests in real property of Seller (including the Potomac River Real Property), and other than Buyer Real Estate. "Seller Required Regulatory Approvals" shall have the meaning set forth in Section 5.3(b). "Seller's Pension Plans" shall have the meaning set forth in Section 9.2. "Seller's Savings Plan" shall have the meaning set forth in Section 9.3. "Seller's Severance Plans" mean those certain plans or policies of the Seller, in effect on the date of Closing, which offer severance benefits to the Non-Union Employees, as described on Schedule 1.1(c) attached to the Agreement. "SO2 Allowances" mean sulfur dioxide allowances that have been allocated to Seller for the Generating Facilities by the Administrator of the United States Environmental Protection Agency under Title IV of the Clean Air Act authorizing the emission of one ton of sulfur dioxide per allowance during or after a specified calendar year. "Support Operations" mean the business operations of the Seller which are primarily engaged in the provision of support services to the ongoing operation of the Generating Facilities (including business planning and strategy services, fuel supply services, bulk power management services, generation engineering and maintenance services, and environmental services). "Tax Benefit" means, with respect to any Indemnifiable Loss for any person, the positive excess, if any, of the Tax liability of such person without regard to such Indemnifiable Loss over the Tax liability of such person taking into account such Indemnifiable Loss, with all other circumstances remaining unchanged. "Tax Cost" means, with respect to any indemnity payment for any person, the positive excess, if any, of the Tax liability of such person taking such indemnity payment into account over the Tax liability of such person without regard to such payment, with all other circumstances remaining unchanged. "Tax Return" means any return, report, information return or other document (including any related or supporting information) required to be supplied to any authority with respect to Taxes. 75 "Taxes" means all taxes, surtaxes, charges, fees, levies, penalties or other assessments imposed by any United States Federal, state or local or foreign taxing authority, including Income Taxes, excise, property, sales, transfer, franchise, special franchise, payroll, recording, withholding, social security or other taxes, or any liability for taxes incurred by reason of joining in the filing of any consolidated, combined or unitary Tax Returns, in each case including any interest, penalties or additions attributable thereto; provided, however, that "Taxes" shall not include sewer rents or charges for water. "Termination Date" shall have the meaning set forth in Section 11.1(b). "Third Party Claim" shall have the meaning set forth in Section 10.2(a). "Total Cash Compensation" shall have the meaning set forth in Section 9.1(d). "Transferable Permits" shall have the meaning set forth in Section 2.2(a)(v). "Transferred NOx Allowances" shall have the meaning set forth in Section 2.2(a)(vii). "Transferred SO2 Allowances" shall have the meaning set forth in Section 2.2(a)(vi). "Transferred Employee Records" shall have the meaning set forth in Section 2.2(a)(viii). "Transferred Employees" shall have the meaning set forth in Section 9.1(d). "Transferred Non-Union Employees" shall have the meaning set forth in Section 9.1(d). "Transferred Savings Employees" shall have the meaning set forth in Section 9.3. "Transferred Union Employees" shall have the meaning set forth in Section 9.1(a). "Transition Power Agreements" means that Transition Power Agreement (District of Columbia) and Transition Power Agreement (Maryland), to be entered into at Closing by Seller and Buyer, substantially in the form of Exhibits J-1 and J-2, respectively, attached to the Agreement. 76 "Transmission System" shall have the meaning set forth in Section 2.2(b)(i). "Unassigned PPA" shall have the meaning set forth in Schedule 2.4 attached hereto. "Union Employees" shall have the meaning set forth in Section 9.1(a). "VCC" means the Virginia State Corporation Commission. "WARN Act" means the Federal Worker Adjustment Retraining and Notification Act of 1988, as amended. 77 EXHIBIT A ASSIGNMENT AND ASSUMPTION AGREEMENT THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Assignment Agreement") dated as of _________, 2000 by and between Potomac Electric Power Company, a District of Columbia and Virginia corporation ("Seller"), and ____________, a ____________ corporation ("Buyer"). Seller and Buyer are referred to individually as a "Party," and collectively as the "Parties." W I T N E S S E T H: WHEREAS, Seller and Buyer are parties to that certain Asset Purchase and Sale Agreement, dated as of June 7, 2000 (as amended, supplemented or otherwise modified from time to time, the "Asset Sale Agreement"); WHEREAS, pursuant to the Asset Sale Agreement, Buyer has agreed to assume from Seller the Assumed Obligations (as defined in the Asset Sale Agreement) and Seller has agreed to retain the Retained Liabilities (as defined in the Asset Sale Agreement); and WHEREAS, it is the intention of the Parties that by the execution and delivery of this Assignment Agreement, Seller will assign to Buyer and Buyer will assume and agree to discharge when due, without recourse to Seller, all Assumed Obligations, as more particularly described and set forth in Section 2.3 of the Asset Sale Agreement. NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer hereby agree as follows: 1. Capitalized terms which are used but not defined in this Assignment Agreement shall have the meaning ascribed to such terms in the Asset Sale Agreement. 2. Seller hereby sells, assigns, conveys, transfers and delivers to Buyer all of the right, title and interest that Seller possesses and has the right to transfer in, to, and under the Transferable Permits, the Transferred SO2 Allowances, the Transferred NOX Allowances, the Contracts, the third-party warranties and guarantees, and all other intangible personal property included in the Auctioned Assets. 3. Buyer hereby assumes and agrees to discharge when due, without recourse to Seller, all liabilities and obligations of Seller constituting the Assumed Obligations. Notwithstanding anything to the contrary herein, Buyer shall not assume or perform any of the Retained Liabilities. 78 4. Neither the making nor the acceptance of this Assignment Agreement shall enlarge, restrict or otherwise modify the terms of the Asset Sale Agreement or constitute a waiver or release by Seller or Buyer of any liabilities, duties or obligations imposed upon either of them by the terms of the Asset Sale Agreement, including, without limitation, the representations and warranties and other provisions which the Asset Sale Agreement provides shall survive the date hereof. 5. In the event that any provision of this Assignment Agreement be construed to conflict with a provision of the Asset Sale Agreement, the provision in the Asset Sale Agreement shall be deemed controlling. 6. This Assignment Agreement shall bind and shall inure to the benefit of the respective Parties and their respective successors and permitted assigns. 7. No Third Party Beneficiary. Nothing in this Assignment Agreement is intended to confer upon any other person except Buyer and Seller any rights or remedies hereunder or shall create any third party beneficiary rights in any person. 8. This Assignment Agreement shall be governed and construed in accordance with the laws of the District of Columbia (regardless of the laws that might otherwise govern under applicable principles of conflicts of law). 9. This Assignment Agreement may be executed in two counterparts, each of which shall be deemed an original, but both of which together will constitute one and the same instrument. 10. Seller hereby appoints _______________, a _______________ of Seller, to be its duly authorized Attorney-in-Fact and in Seller's name to execute, acknowledge and deliver this Assignment Agreement as its act and deed. Buyer hereby appoints _____________, its ______________, to be its duly authorized Attorney-in-Fact and in Buyer's name to execute, acknowledge and deliver this Assignment Agreement as its act and deed. IN WITNESS WHEREOF, this Assignment Agreement has been duly executed and delivered by the Parties as of the date first above written. Attest: POTOMAC ELECTRIC POWER COMPANY By By -------------------------- ---------------------------- Secretary Name: Title: Attest: [BUYER] By By -------------------------- ---------------------------- Secretary Name: Title: 79 ) DISTRICT OF COLUMBIA ) SS: ) The undersigned, a Notary Public in and for the jurisdiction aforesaid, does hereby certify that ______________, personally known to me (or satisfactorily proven) to be the person who signed as attorney-in-fact for Seller named in the foregoing Instrument, personally appeared before me in said jurisdiction, and as such attorney-in-fact and by virtue of the authority vested in him by said Instrument, acknowledged the same to be the act and deed of said corporation, and that he executed and delivered the same as such. WITNESS my hand and official seal this ___ day of ___________, 2000. ------------------------------------- My Commission Expires: Notary Public in and for the District of Columbia ) DISTRICT OF COLUMBIA ) SS: ) The undersigned, a Notary Public in and for the jurisdiction aforesaid, does hereby certify that ______________, personally known to me (or satisfactorily proven) to be the person who signed as attorney-in-fact for Buyer named in the foregoing Instrument, personally appeared before me in said jurisdiction, and as such attorney-in-fact and by virtue of the authority vested in him by said Instrument, acknowledged the same to be the act and deed of said corporation, and that he executed and delivered the same as such. WITNESS my hand and official seal this ___ day of ___________, 2000. ------------------------------------- My Commission Expires: Notary Public in and for the District of Columbia 80 EXHIBIT B BILL OF SALE THIS BILL OF SALE is made as of the ___ day of ____________, 2000 by Potomac Electric Power Company, a District of Columbia and Virginia corporation ("Seller"), for the benefit of ________________, a ___________________ ("Buyer"). W I T N E S S E T H: WHEREAS, pursuant to that certain Asset Purchase and Sale Agreement, dated as of June 7, 2000 (as amended, supplemented or otherwise modified from time to time, the "Asset Sale Agreement"), by and between Seller and Buyer, Seller has agreed to sell, assign, convey, transfer and deliver all of its right, title and interest in and to the Auctioned Assets (as defined in the Asset Sale Agreement) to Buyer, and Buyer has agreed to purchase, assume and acquire such Auctioned Assets from Seller; and WHEREAS, pursuant to the Asset Sale Agreement, Seller has entered into this Bill of Sale as evidence of such conveyance to Buyer. NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, Seller hereby agrees as follows: 1. Defined Terms. Capitalized terms which are used but not defined in this Bill of Sale shall have the meaning ascribed to such terms in the Asset Sale Agreement. 2. Assignment. Seller does hereby sell, assign, convey, transfer and deliver to Buyer all of Seller's right, title and interest in and to all of the Auctioned Assets. 3. Retained Assets Not Assigned. Notwithstanding anything expressed herein to the contrary, the Retained Assets are specifically excluded from the Auctioned Assets and shall be retained by Seller following the Closing Date. 4. Disclaimers. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN ARTICLE V OF THE ASSET SALE AGREEMENT, THE AUCTIONED ASSETS ARE BEING SOLD AND TRANSFERRED "AS IS, WHERE IS", AND SELLER IS NOT MAKING ANY OTHER REPRESENTATIONS OR WARRANTIES WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, CONCERNING SUCH AUCTIONED ASSETS (INCLUDING ANY RELATING TO LIABILITIES, OPERATIONS OF THE GENERATING FACILITIES, CONDITION, VALUE OR QUALITY OF THE AUCTIONED ASSETS OR THE PROSPECTS (FINANCIAL OR OTHERWISE), RISKS OR OTHER INCIDENTS OF THE AUCTIONED ASSETS) OR WITH RESPECT TO THE ASSET SALE AGREEMENT OR THE ANCILLARY AGREEMENTS OR THE TRANSACTIONS CONTEMPLATED 81 THEREBY. SELLER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE AUCTIONED ASSETS, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS, OR THE APPLICABILITY OF ANY GOVERNMENTAL REQUIREMENTS, INCLUDING BUT NOT LIMITED TO ANY ENVIRONMENTAL LAWS, OR WHETHER SELLER POSSESSES SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE THE AUCTIONED ASSETS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN SECTION 5.10 OF THE ASSET SALE AGREEMENT, SELLER FURTHER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING THE ABSENCE OF HAZARDOUS SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING UNDER ENVIRONMENTAL LAWS WITH RESPECT TO THE AUCTIONED ASSETS, ALL OF WHICH ARE HEREBY EXPRESSLY WAIVED BY BUYER. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SELLER MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION SET FORTH IN, OR CONTEMPLATED BY, THE INFORMATION MEMORANDUM. 5. Binding Effect; Assignment. This Bill of Sale and all of the provisions hereof shall be binding upon Seller and its successors and permitted assigns and shall inure to the benefit of Buyer and its successors and permitted assigns. 6. No Third Party Beneficiary. Nothing in this Bill of Sale is intended to confer upon any other person except Buyer and Seller any rights or remedies hereunder or shall create any third party beneficiary rights in any person. 7. Governing Law. This Bill of Sale shall be governed by and construed in accordance with the laws of the District of Columbia (regardless of the laws that might otherwise govern under applicable principles of conflicts of law). 8. Construction. This Bill of Sale is delivered pursuant to and is subject to the terms of the Asset Sale Agreement. In the event of any conflict or ambiguity between the terms of the Asset Sale Agreement and the terms of this Bill of Sale, the terms of the Asset Sale Agreement shall control. 9. Counterparts. This Bill of Sale may be executed in two counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument. 10. Power-of-Attorney. Seller hereby appoints _______________, a _______________ of Seller, to be its duly authorized Attorney-in-Fact and in Seller's name to execute, acknowledge and deliver this Agreement as its act and deed. Buyer hereby appoints _____________, its ______________, to be its duly authorized Attorney-in-Fact and in Buyer's name to execute, acknowledge and deliver this Agreement as its act and deed. 82 IN WITNESS WHEREOF, this Bill of Sale has been duly executed and delivered by Seller as of the date first above written. Attest: POTOMAC ELECTRIC POWER COMPANY By By --------------------- ----------------------------- Secretary Name: Title: ACCEPTED AND AGREED TO THIS ____ DAY OF __________, 2000: Attest: [BUYER] By By --------------------- ----------------------------- Secretary Name: Title: 83 ) DISTRICT OF COLUMBIA ) SS: ) The undersigned, a Notary Public in and for the jurisdiction aforesaid, does hereby certify that ______________, personally known to me (or satisfactorily proven) to be the person who signed as attorney-in-fact for Seller named in the foregoing Instrument, personally appeared before me in said jurisdiction, and as such attorney-in-fact and by virtue of the authority vested in him by said Instrument, acknowledged the same to be the act and deed of said corporation, and that he executed and delivered the same as such. WITNESS my hand and official seal this ___ day of ___________, 2000. ------------------------------------ My Commission Expires: Notary Public in and for the District of Columbia 84 ) DISTRICT OF COLUMBIA ) SS: ) The undersigned, a Notary Public in and for the jurisdiction aforesaid, does hereby certify that ______________, personally known to me (or satisfactorily proven) to be the person who signed as attorney-in-fact for Buyer named in the foregoing Instrument, personally appeared before me in said jurisdiction, and as such attorney-in-fact and by virtue of the authority vested in him by said Instrument, acknowledged the same to be the act and deed of said corporation, and that he executed and delivered the same as such. WITNESS my hand and official seal this ___ day of ___________, 2000. ______________________________ My Commission Expires: Notary Public in and for the District of Columbia 85 EXHIBIT C-1 AFTER RECORDING PARCEL ID# PLEASE RETURN TO: STREET ADDRESS: _________________ _______________ _________________ _______________ _________________ _______________ EASEMENT, LICENSE AND ATTACHMENT AGREEMENT (Potomac River) THIS EASEMENT, LICENSE AND ATTACHMENT AGREEMENT (the "Agreement"), is dated as of ______________, 2000, and is entered into by and between ________________________________________, a corporation organized and existing under the laws of the State of __________ and having an office at ____________________________ ("Generator") and POTOMAC ELECTRIC POWER COMPANY, a District of Columbia and Virginia corporation and having an office at 1900 Pennsylvania Avenue, N.W., Washington, DC 20068 ("Pepco"). Generator and Pepco may hereinafter be referred to individually as a "Party" and collectively as the "Parties." RECITALS A. Generator and Pepco have entered into an Asset Purchase and Sale Agreement for Generating and Related Assets (the "Asset Sale Agreement"), dated June 7, 2000, for the sale of Pepco's generating station known as the Potomac River Station (as defined in the Asset Sale Agreement), which is located on that certain parcel of real property which has been leased by Pepco to Generator pursuant to that certain Site Lease Agreement between Pepco and Generator of even date herewith (the "Site Lease Agreement") and is more particularly described in Exhibit "A" attached hereto (the "Generator's Leasehold Property"). The Generator's Leasehold Property constitutes a portion of the overall land comprising the Potomac River Station, which overall land is more particularly described in Exhibit "B" attached hereto (the "Pepco Real Property"). In connection with Pepco's sale of Potomac River Station pursuant to the Asset Purchase Agreement, Pepco has sold to the Generator certain improvement located upon the Generator's Leasehold Property (excluding the Building Addition, as described in, and leased to Generator pursuant to, the Site Lease Agreement) (such improvements sold to Generator being referred to herein as the "Generator's Improvements"). B. Pepco intends to continue to operate its transmission and distribution business on and from that portion of the Pepco Real Property which is not leased to Generator pursuant to the Site Lease, which portion is more particularly described in Exhibit "C" attached hereto (the "Non-Leased Pepco Real Property"). C. Pepco will continue to own and operate certain assets used in the conduct of its transmission and distribution business which are located upon the Generator's Leasehold Property, and Pepco requires Access (as defined below) to, and certain other rights with respect to, the Generator's Leasehold Property in connection therewith. 86 Generator, in the operation and conduct of its generation business, will require Access to, and certain other rights with respect to, the Non-Leased Pepco Real Property. Furthermore, Pepco and Generator have entered into an Interconnection Agreement (the "Connection Agreement"), dated as of __________, 2000, pursuant to which Pepco has agreed to provide certain Interconnection Service to Generator required for Generator's conduct of its generation business at Potomac River Station. D. In order for the Parties each to (i) enjoy the full benefit of their respective property rights, real or personal, and conduct their respective businesses thereat (ii) fulfill legal requirements, and (iii) comply with their respective agreements under the Connection Agreement, each Party requires certain easements, licenses, rights-of-way and/or attachment rights in, on, over and above, or with respect to, real and or personal property of the other Party. AGREEMENT NOW, THEREFORE, the Parties, in consideration of the mutual covenants and agreements contained herein and in the Asset Sale Agreement and the Connection Agreement, and for One Dollar ($1.00) and other good and valuable consideration, the receipt whereof and sufficiency of which are hereby acknowledged, each intending to be legally bound and to bind their respective successors and assigns, hereby mutually agree as follows: 1. DEFINITIONS 1.1 Definitions. Any capitalized terms which are used but not defined in the body of this Agreement shall have the meanings given to such terms in the attached Schedule 1.1. 2. EASEMENTS 2.1 Grant of Easements to Pepco. Generator does hereby give, grant, bargain, sell, assign and convey unto Pepco, the following easements on the Generator's Leasehold Property, the Generator's Improvements and the Building Addition for the following purposes: (a) An easement for the Use, operation and maintenance of the Retained Assets (as described in the Asset Sale Agreement) located upon the Generator's Leasehold Property and any other equipment of any nature or kind retained by Pepco and located upon the Generator's Leasehold Property, together with any other equipment used in connection with the foregoing (together with replacements thereof and substitutions therefor). (b) An easement which enables Pepco to keep and maintain in their present locations, and operate, any Transmission Facilities, Distribution Facilities and 87 other assets owned by Pepco and located upon the Generator's Leasehold Property, together with an easement for all purposes reasonably deemed necessary or convenient by Pepco to exercise any right or fulfill any obligation under the Connection Agreement, including the right to Use any improvements constructed, maintained or installed in connection therewith. (c) An easement and other Generator's Improvements and the Building Addition of Access to those certain generating buildings (and any replacements thereof) located upon the Generator's Leasehold Property in and upon which certain of Pepco's Distribution Facilities and Transmission Facilities are located. Such easement shall include, without limitation, the right to have keys, access codes or other access methods necessary to enter any of such generating buildings. Furthermore, the exercise of the easement right set forth in this subparagraph shall be subject to the provisions of the Connection Agreement including, without limitation, Section 3.3 thereof. (d) An easement of Access to the Generator's Leasehold Property for the purposes of exercising any of the rights granted in this Section 2.l, in the Connection Agreement or the Asset Sale Agreement. (e) An easement of Access to, and the right to use, the parking lots, access roads, driveways and other such facilities located upon the Generator's Leasehold Property. (f) Pepco's exercise of the rights, easements, privileges and licenses granted to it pursuant to this Section 2.1 shall be limited to Qualified Personnel or employees of contractors employed by Pepco who, in either event, are under Pepco's and/or its contractors' direct supervision and whose duties include, or who are engaged for the purpose of, Use of the rights granted pursuant to this Section 2.1. (g) The easements granted pursuant to this Section 2.1 shall expressly include Pepco's right to lease, license or otherwise permit Affiliates or third parties to use Pepco's facilities upon such terms and for such purposes as Pepco may determine from time to time, subject to the terms and conditions of this Agreement. 2.2 Reservation by Generator of Certain Rights. Generator reserves to itself, from the easements granted pursuant to Section 2.1 hereof, the following rights, subject, however, to the provisions of the final paragraph of this Section 2.2: (a) the right to (i) keep and maintain Generator's Leasehold Property and all improvements and facilities owned by Generator and located upon the Generator's Leasehold Property in their present locations, and (ii) operate and maintain all improvements and facilities owned by Generator and located upon the Generator's Leasehold Property in a manner consistent with past practice; and 88 (b) the right to have Access to all portions of the Generator's Leasehold Property for all purposes deemed reasonably necessary or convenient by Generator in the operation and conduct of its generation business or in order to perform any act permitted, or fulfill any obligation of Generator, under the Connection Agreement, including maintenance of the Generator's Leasehold Property in the manner described in the Connection Agreement. (c) Generator's exercise of the rights reserved to Generator in this Section 2.2, and the rights, privileges and licenses granted to Generator in Section 2.3 shall be exclusively limited to Qualified Personnel or employees of contractors employed by Generator who, in either event, are under Generator's and/or its contractors' direct supervision and whose duties include, or who are engaged for the purpose of, Use of the property described in clause (a) of this Section. 2.3 Grant of Easements, Right, Privilege and License from Pepco to Generator. (a) Pepco does hereby grant to Generator the following easements, rights, privileges and licenses on and with respect to the Non-Leased Pepco Real Property: (i) An easement which enables Generator to keep and maintain in their present locations, and operate, any Generating Facilities and other assets owned by Generator and located upon the Non-Leased Pepco Real Property. (ii) An easement of Access to and upon the Non-Leased Pepco Real Property for the purposes of exercising any of the rights granted in the Connection Agreement or the Asset Sale Agreement. (b) In addition, but without limitation of Generator's rights pursuant to the Connection Agreement, Pepco agrees to make available to Generator (at no cost to Generator, except as provided below) Pepco's master station voltage control equipment (the "Equipment") located at Potomac River Station upon the Generator's Leasehold Property during the term of this Agreement, subject to the following terms and conditions, and Generator agrees to comply with such terms and conditions: (i) Generator's operation of the Equipment shall at all times be subject to that certain Agreement of Sale and Lease dated as of November 30, 1994 between NationsBank Trust Company, National Association and Pepco (the "Control Center Lease"), and Generator shall comply with the terms and conditions thereof with respect to the use of the Equipment (including keeping the Equipment free and clear of any liens, claims or encumbrances of whatever nature, and identifying the Equipment as being owned by Pepco, and shall not modify, alter, remove or add to the Equipment); 89 (ii) Generator shall operate and maintain the Equipment in accordance with Good Utility Practice; (iii) Generator shall be responsible for all operating, repair and maintenance costs, taxes and the like with respect to the Equipment, and shall reimburse Pepco promptly upon invoicing for any such costs paid by Pepco; (iv) Generator's Access to the Equipment shall be in accordance with this Agreement; (v) Generator's right to operate the Equipment shall terminate in the event of actual or constructive loss of the Equipment, damage rendering the Equipment beyond repair or unfit for normal use, the condemnation or seizure of the Equipment, the obsolescence of the Equipment or the material breach by Generator of any of its covenants in this Section 2.3(b); (vi) Pepco shall have no obligation to Generator with respect to the Equipment other than to permit Access to and operation of the Equipment in accordance with this Section 2.3(b); (vii) The obligations of Generator under Section 7.4 (maintenance of liability insurance coverage) and Section 7.1 (indemnification) shall be applicable to the Equipment; and (viii) Pepco shall have Access to the Equipment for purposes of complying with the terms and conditions of the Control Center Lease and as necessary to perform any of the obligations of Generator pursuant to this subparagraph (b) above to the extent the same are not timely performed by Generator. 2.4 General Scope of Easements. (a) Except as otherwise provided in Sections 2.2 and 2.3 above and Section 2.4(b) below, each easement and each right, privilege and license granted hereby is and shall be a perpetual grant, transfer, conveyance and right of Access to and Use (subject to the terms of this Agreement) to the Grantee thereof and to any future owner of the real property, improvements and facilities benefited thereby. Notwithstanding the foregoing, all easements, rights, privileges and licenses granted by this Agreement are and shall be subject to the terms and conditions of the Connection Agreement, and in the event 90 of any inconsistency between the terms and conditions of the Connection Agreement and the terms of this Agreement, the terms of the Connection Agreement shall control. (b) Any easement or right, privilege and license granted hereunder for purposes of enabling a Party to exercise any right or fulfill any obligation set forth in the Connection Agreement will continue for the term of the Connection Agreement, and thereafter if and to the extent that the right or obligation (i) shall by its express terms survive the termination or expiration of the Connection Agreement or (ii) is necessary for the conduct of business by Grantee. In the event of the termination or expiration of an easement or right, privilege and license granted hereunder for purposes of enabling a Grantee to exercise any right or fulfill any obligation set forth in the Connection Agreement, all equipment and facilities installed or maintained by such Grantee on the real property of the other Party pursuant to said terminated or expired easement or right, privilege and license shall, at the request of the other Party, be removed at the sole cost and expense of such Grantee, and such Grantee shall, at its sole cost and expense repair any damage to the real property and/or equipment and facilities of the other Party damaged as a result of such removal. (c) All equipment and facilities installed or maintained by Grantee pursuant to an easement or right, privilege and license granted hereunder shall be maintained by Grantee in accordance with Good Utility Practice and the Connection Agreement, and Grantee shall make all repairs and replacements necessary to keep such equipment and facilities in such condition. (d) Generator may not Use any portion of Generator's Leasehold Property burdened by any easement, right or privilege granted to Pepco hereunder if such Use would materially adversely affect the Use and enjoyment by Pepco of the rights granted to it hereunder, or materially increase the costs or risks associated with such Use. (e) All easements granted herein shall be deemed easements appurtenant to the parcel of real property benefited thereby and shall run with such real property and shall be deemed covenants running with the real property burdened thereby. 2.5 Interpretation. The following shall apply in interpreting any easement and any right, privilege and license granted pursuant to this Agreement: (a) Each easement and each right, privilege and license granted herein is irrevocable except by written agreement of the parties. (b) With respect to any easement created by this Agreement, the words "in," "upon," "to," "on," "over," "above," "through" and/or "under" shall be interpreted to include all of such terms. 91 (c) Each easement and each right, privilege and license granted herein may be enjoyed without charge or fee to Grantee of the easement. (d) Each easement and each right, privilege and license granted herein is also a grant of the additional right of Access over Grantor's property to accomplish the purpose of such easement or right, privilege and license, to perform any obligations hereunder or in the Connection Agreement, and to comply with any legal requirements affecting Grantee or its property and/or improvements. (e) Exercise of any easement or any right, privilege and license granted hereunder permitting or requiring maintenance, repairs, alteration, restoration, rebuilding, construction, upgrading, cleaning, installation, removal, modification, replacement, expansion, or other work by Grantee upon the property or improvements of Grantor shall be subject to the following conditions: (i) Work upon the facilities and properties of either Party subject to this Agreement shall be permitted only to each Party's Qualified Personnel, and Access to such facilities and properties shall be permitted only to a Party's Qualified Personnel and such consultants, agents, contractors, subcontractors and invitees as any Party may select or permit; provided that any consultant, agent, contractor, subcontractor or invitee shall comply with all applicable provisions of this Agreement and the Connection Agreement. (ii) Work shall be performed using reasonable precautions to avoid unreasonable interference with the Use and enjoyment of Grantor's property and improvements. (iii) Except only as may be specifically provided to the contrary herein, Grantee shall not be liable for damage, if any, which may be caused by Grantee's normal and reasonable Use of any easement, or right, privilege or license granted hereunder. (iv) Following completion of the work, Grantee shall restore Grantor's property and improvements to the same or as good a condition as existed before the commencement of the work. (v) Any easement and any right, privilege and license granted herein which permits a Grantee to maintain its property, equipment, facilities and appurtenances on the property and improvements owned by Grantor also includes the right to maintain in place on Grantor's property and improvements any and all wires and cables, connecting such property, equipment, 92 facilities, and appurtenances to (i) the devices, machinery and equipment which they measure, regulate and/or control, and (ii) power sources. (vi) Generator shall be solely responsible for the maintenance of any roads, paths and other means of entry or exit located upon either the Generator's Real Generator's Real Property or the Pepco Real Property that are commonly utilized by Generator and Pepco, and their respective employees, agents and contractors pursuant to this Agreement or the Connection Agreement. (f) Any easement granted pursuant to Section 2.1(a), (b) or (c) includes the right to (i) trim, cut, treat and/or remove, by manual, mechanical, and chemical means, any and all trees, brush, structures and other obstructions within the easement area, as well as such trees, brush, structures and vegetation outside of the easement area deemed reasonably necessary or desirable by Pepco for the safe and secure operation of its facilities; and (ii) obtain Access to Generator's Leasehold Property for the purpose of performing the aforementioned acts. 2.6 Rules and Regulations. Each Party may promulgate rules regulating the conduct of the other Party in the exercise of rights under this Agreement provided such rules and regulations do not unreasonably interfere with or impede the affected Party's rights and easements as set forth herein or in the Connection Agreement. 2.7 No Obstruction. (a) No Party hereto shall obstruct the easements or the rights, privileges and licenses granted or created pursuant to this Agreement or render them impassable or unusable in any way or otherwise in any way interfere with the right to the Use and enjoyment of the easements or rights, privileges and licenses granted or created pursuant to this Agreement. (b) No Party hereto shall make any changes to the topography or accesses on or to its respective property, including grading or drainage that could reasonably be expected to adversely affect another Party's facilities, common use drainage systems, or pollution control systems, or the exercise of any right or fulfillment of any obligation in this Agreement or in the Connection Agreement, without the prior written consent of the other Party which consent shall not unreasonably be withheld, delayed or conditioned. 93 3. TAXES, ASSESSMENTS AND OTHER CHARGES 3.1 Real Estate Taxes. All matters concerning the payment of taxes, assessments and other such charges shall be governed by the provisions of Article 6 of Site Lease, which are incorporated herein by reference. 4. MECHANICS' LIENS 4.1 Notice Regarding Labor and Material. Notice is hereby given that no Party hereto shall be liable for any labor or materials furnished or to be furnished to or for another Party hereto or to any other persons or entities claiming under such other Party on credit, and that no mechanics' or other lien for any such labor or material furnished to a Party or such other persons or entities shall attach to or affect any property interest of any other Party. 4.2 Disposition of Liens. (a) Pepco shall forthwith take such action necessary to discharge, remove or satisfy any lien filed against the Generator's Leasehold Property or any portion thereof for any labor or materials furnished or to be furnished for or on behalf of Pepco, or any person or entity holding any portion thereof through or under Pepco. (b) Generator shall forthwith take such action necessary to discharge, remove or satisfy any lien filed against the Non-Leased Pepco Real Property or any portion thereof for any labor or materials furnished or to be furnished for or on behalf of Generator, or any person or entity holding any portion thereof through or under Generator. (c) If either Pepco or Generator, as the case may be, shall fail to discharge, remove or satisfy any such lien which it is obligated to discharge, remove or satisfy hereunder within ten (10) days after notice of the existence of the lien has been given to such defaulting Party, the non-defaulting Party or parties may pay the amount of such lien or discharge the same by deposit or bonding, and the amount so paid or deposited, or the premium paid for such bond, with interest at the rate provided for defaults in Section 6.3 hereof, shall be paid by the defaulting Party upon demand to the non-defaulting Party who effected such cure. (d) The defaulting Party shall defend, indemnify and save harmless the non-defaulting Party from and against all liability, loss, cost or expense (including reasonable attorneys' fees) arising out of any liens which the defaulting Party is obligated to discharge, remove or satisfy. 94 5. CONDEMNATION 5.1 Condemnation. All matters concerning condemnation shall be governed by the provisions of Article 17 of the Site Lease, which are incorporated herein by reference. 6. DEFAULTS 6.1 Events of Default. Each and every one of the following events shall constitute an Event of Default ("Event of Default") under this Agreement: (a) If a Party fails to make any payment due to the other Party hereto within twenty (20) days of written demand for such payment; (b) If a Party fails, within twenty (20) days of written notice from a Party, to make any payment due from such Party to any third party and such failure could result in the imposition of a lien or other encumbrance on the property or improvements of a Party, unless the payment of such amount is contested in accordance with Section 3.5 hereof, in which case, the provisions of Section 3.5 shall control; and (c) If a Party fails to perform any material non-monetary obligations hereunder, and said Party fails to cure such default within thirty (30) days of receipt of written notice stating with particularity the nature of the default; provided, however, if such default is of such a nature that it cannot be cured within thirty (30) days following receipt of such notice, an Event of Default shall not have occurred if the defaulting Party shall within such thirty (30) days commence the necessary cure and shall at all times thereafter diligently and continuously prosecute such cure to completion. 6.2 Right of Self Help. A non-defaulting Party may at its election following the occurrence of a non-monetary Event of Default and the thirtieth (30th) day after the receipt of the written notice specified in paragraph 6.1(c) hereof, undertake the cure of such default on behalf of the defaulting Party. A non-defaulting Party is granted an easement to enter upon, through or under the property or improvements of the defaulting Party to effect such cure. Following the occurrence of an Event of Default involving the payment of money to a person or entity not Party to this Agreement, a non-defaulting Party may make such payment on behalf of the defaulting Party. All monies paid by the non-defaulting Party and all reasonable costs and expenses (including, reasonable attorneys' fees) incurred by it, as the case may be, in effecting such cure or payment, shall be paid by the defaulting Party upon written demand, together with interest from the date of such demand at the rate set forth in Section 6.3. This Section 6.2 shall not limit Pepco's self-help rights pursuant to Section 2.3(b). 6.3 Interest. Following the occurrence of an Event of Default involving the nonpayment of money by the defaulting Party to the non-defaulting Party, all 95 monies owed to the non-defaulting party shall bear interest at the rate equal to one and one-half percent (1.5%) per month accruing on the due date, provided, however, that such late payment charge shall not exceed the maximum charge which may be collected under State law. 6.4 Enforcement Rights. In addition to any other rights expressly set forth in this Agreement, but without limitation, enforcement of this Agreement may be had by legal or equitable proceedings against any defaulting Party either to specifically enforce, restrain or enjoin the violation of any restriction, covenant, agreement, term, representation or warranty herein contained or to recover damages. The above notwithstanding, termination of this Agreement shall not be available as a remedy in any proceedings against any defaulting Party. 6.5 No Forfeiture. Except by enforcement of a judgment lien against such property, nothing contained in this Agreement shall create any reversion, condition or right of re-entry or other provisions for forfeiture under which any Party can be cut off, subordinated or otherwise disturbed in the possession of its property. 6.6 Independent Covenants. None of the rights and easement granted by this Agreement and none of the performances required by this Agreement shall be dependent, upon the performance of any other term, promise, or condition of this Agreement or any documents executed concurrently or in connection with this Agreement, and such rights, easement and requirements or performance shall continue in effect irrespective of whether anything else in this Agreement or such other documents has been breached or has been terminated. The separateness and independent survival of the right, easements and requirements of performance under this Agreement are essential terms hereof without which this Agreement would not have been made. 7. INDEMNIFICATION AND INSURANCE 7.1 Generator's Indemnification. Generator shall indemnify, hold harmless, and defend Pepco and its Affiliates, as the case may be, and their respective officers, directors, employees, agents, contractors, subcontractors, invitees, successors and permitted assigns from and against any and all claims, liabilities, costs, damages, and expenses (including, without limitation, reasonable attorney and expert fees, and disbursements incurred by any of them in any action or proceeding between Pepco and a third party or Generator) for damage to property of unaffiliated third parties, injury to or death of any person, including Pepco's employees or any third parties, to the extent caused, by the breach of this Agreement by Generator or the negligence or willful misconduct of Generator and/or its officers, directors, employees, agents, contractors, subcontractors or invitees arising out of or connected with Generator's performance of this Agreement, or the exercise by Generator of its rights hereunder. 96 7.2 Pepco's Indemnification. Pepco shall indemnify, hold harmless, and defend Generator and its Affiliates, as the case may be, and their respective officers, directors, employees, agents, contractors, subcontractors, invitees, successors and permitted assigns from and against any and all claims, liabilities, costs, damages, and expenses (including, without limitation, reasonable attorney and expert fees, and disbursements incurred by any of them in any action or proceeding between Generator and a third party or Pepco) for damage to property of unaffiliated third parties, injury to or death of any person, including Generator's employees or any third parties, to the extent caused by the breach of this Agreement by Pepco or the negligence or willful misconduct of Pepco and/or its officers, directors, employees, agents, contractors, subcontractors or invitees arising out of or connected with Pepco's performance of this Agreement, or the exercise by Pepco of its rights hereunder. 7.3 Survival. The provisions of Sections 7.1 and 7.2 shall survive termination, cancellation, suspension, completion or expiration of this Agreement. 7.4 Insurance Coverage. The Parties shall maintain at their own cost the following insurance: (a) standard Commercial General Liability insurance with limitations not less than One Hundred Million Dollars ($100,000,000.00)in the aggregate; (b) All-Risk Property insurance in amounts not less than one hundred percent (100%) of the full replacement cost of the improvements located upon each Party's real property; (c) Worker's compensation insurance as required by prevailing law and Employer's liability insurance with limits of not less than Twenty-five Million Dollars ($25,000,000.00); and (d) such other insurance as is customary in the electric utility industry. 7.5 Certificate of Insurance. The Parties agree to furnish each other with certificates of insurance evidencing the insurance coverage obtained in accordance with this Article 7, and the Parties agree to notify and send copies to the other of any policies maintained hereunder upon written request by a Party. Each Party must notify the other Party within five (5) business days of receiving notice of cancellation, change, amendment or renewal of any insurance policy required pursuant to Section 7.4 above. 7.6 Additional Insureds and Waiver. Each Party and its affiliates shall be named as additional insureds on the general liability insurance policies obtained in accordance with Section 7.4, above, as regards liability under this Agreement; and each general liability insurance policy shall contain a waiver of subrogation and each Party shall waive its rights of recovery against the other for any loss or damage covered by such policy. 8. MISCELLANEOUS 8.1 Effective Date. This Agreement will be effective on the Closing Date pursuant to the Asset Sale Agreement (the "Effective Date"). 97 8.2 Exhibits. All exhibits attached to this Agreement are part of this Agreement and the material contained in such exhibits shall be construed and interpreted as if contained within the text of the Agreement. 8.3 Headings. The Article and Section headings of this Agreement are for convenience and reference only and in no way define, limit or describe the scope and intent of this Agreement, nor in any way affect this Agreement. 8.4 Interpretation. When a reference is made in this Agreement to an Article, Section, Schedule or Exhibit, such reference shall be to an Article or Section of, or Schedule or Exhibit to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation" or equivalent words. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any agreement, instrument, statute, regulation, rule or order defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument, statute, regulation, rule or order as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes, regulations, rules or orders) by succession of comparable successor statutes, regulations, rules or orders and references to all attachments thereto and instruments incorporated therein. References to a person are also to its permitted successors and assigns. Each Party acknowledges that it has been represented by counsel in connection with the review and execution of this Agreement and, accordingly, there shall be no presumption that this Agreement or any provision hereof be construed against the Party that drafted this Agreement. 8.5 GOVERNING LAW. EXCEPT WITH RESPECT TO THE CREATION, PERFECTION AND ENFORCEMENT OF THE REAL PROPERTY INTERESTS CREATED HEREUNDER, WHICH SHALL BE GOVERNED AND CONSTRUED BY THE LAWS OF THE STATE, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE DISTRICT OF COLUMBIA EXCLUSIVE OF ITS CHOICE OF LAW RULES. 8.6 Entire Agreement. This Agreement, the Asset Sale Agreement, the Site Lease, the Confidentiality Agreement (as defined in the Asset Sale Agreement) and the Ancillary Agreements (as defined in the Asset Sale Agreement) including the Exhibits, Schedules, documents, certificates and instruments referred to herein or therein and other contracts, agreements and instruments contemplated hereby or thereby, embody the entire agreement 98 and understanding of the Parties in respect of the transactions contemplated by this Agreement. There are no restrictions, promises, representations, warranties, covenants or undertakings other than those expressly set forth or referred to herein or therein. 8.7 Amendment and Modification, Extension, Waiver. This Agreement may be amended, modified or supplemented only by an instrument in writing signed on behalf of each of the Parties. Either Party may (i) extend the time for the performance of any of the obligations or other acts of the other Party, (ii) waive any inaccuracies in the representations and warranties of the other Party contained in this Agreement or (iii) waive compliance by the other Party with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a Party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such Party. The failure of a Party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. 8.8 Binding Effect. The covenants, conditions, restrictions, encumbrances, easements, license and agreements set forth in this Agreement shall attach to, burden, and run with the land and the Generator's Real Property and the Pepco Real Property or the applicable portion or portions thereof, and shall be appurtenant to the Generator's Property or the Pepco Real Property, as appropriate and, together with the remainder of this Agreement, shall be binding upon the Parties hereto and their respective successors, assigns, grantees, transferees and tenants and, together with the remainder of this Agreement, shall inure to the benefit and Use of the Parties hereto and their respective heirs, successors, assigns, grantees, transferees and tenants. Each Grantee of any portion of or interest in the property and each mortgagee which succeeds to the fee simple ownership of any portion of the property shall be deemed, by the acceptance of the deed conveying fee simple title to such person, to have agreed to perform each and every undertaking created hereunder attributable to the portion of the property in which such Grantee or mortgagee has acquired an interest. 8.9 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 8.10 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. 99 8.11 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given (as of the time of delivery or, in the case of a telecopied communication, of confirmation) if delivered personally, telecopied (which is confirmed) or sent by overnight courier (providing proof of delivery) to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice): if to Pepco, to: Potomac Electric Power Company 1900 Pennsylvania Avenue, N.W. Washington, D.C. 20068 Telecopier: (202) 261-7889 Attention: William T. Torgerson, General Counsel with a copy to: Dickstein Shapiro Morin & Oshinsky LLP 2101 L Street, N.W. Washington, D.C. 20037 Telecopy No.: (202) 887-0689 Attention: Kenneth M. Simon, Esq. if to Generator, to: Southern Energy, Inc. 900 Ashwood Parkway Suite 500 Atlanta, Georgia 30338-4780 Telecopier: (770) 821-6575 Attention: with a copy to: Troutman Sanders LLP 1300 I Street, N.W. Suite 500 East Washington, DC 20005 Telecopier: (202) 274-2994 Attention: Benjamin L. Israel, Esq. The names, titles and addresses of either Party in this section may be changed by written notification to the other Party. 100 8.12 Independent Contractor Status. Nothing in this Agreement shall be construed as creating any relationship between Pepco and Generator other than that of independent contractors. 8.13 Conflicts. Except with respect to the amendments, indemnification, liability, default and remedies provisions contained herein or as otherwise expressly provided herein, in the event of any conflict or inconsistency between the terms of this Agreement and the terms of the Asset Sale Agreement, the terms of the Asset Sale Agreement shall prevail. IN WITNESS WHEREOF, Pepco and Generator have caused this Agreement to be signed by their respective duly authorized officers as of the date first above written. POTOMAC ELECTRIC POWER COMPANY By: -------------------------------------- Name: ------------------------------------- Title: ------------------------------------ [GENERATOR] By: -------------------------------------- Name: ------------------------------------- Title: ------------------------------------ 101 STATE OF ) ) SS: COUNTY OF ) BEFORE ME, a Notary Public in and for said County and State, personally appeared ____________________________, an ______________________, by _____________________, its ________ who _________ is personally known to me/________ and who acknowledged before me that he did sign the foregoing instrument and that the same is the free act and deed of said _______________, and his free act and deed personally and as such officer. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at __________, __________, this ____ day of _________, ____. ------------------------------------------- Notary Public My Commission Expires: STATE OF ) ) SS: COUNTY OF ) BEFORE ME, a Notary Public in and for said County and State, personally appeared _______________________, an ___________________, by ________________ its _____________________ who _______ is personally known to me/________ and who acknowledged before me that he did sign the foregoing instrument and that the same is the free act and deed of said corporation, and his free act and deed personally and as such officer. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at __________, __________, this ____ day of _________, ____. ------------------------------------------- Notary Public My Commission Expires: 102 Schedule 1.1 Definitions "Access" means, subject to the conditions set forth in this Agreement and a Party's right to impose reasonable security and safety restrictions protecting its officers, employees, agents, consultants, contractors, subcontractors, invitees, property and confidential information, full and unimpeded access, in common with Grantor over and through existing roads, paths, walkways, corridors, hallways, doorways, and other means of entry or exit, as exist now and from time to time on Grantor's property or, where no means of access exists, over and through those areas of Grantor's property or improvements which are (i) reasonably necessary or convenient for achieving Grantee's underlying purposes, and (ii) least likely, out of the alternatives reasonably available, to impede or damage the property or operation of any Party hereto. Access shall also include access and right-of-way for Grantee's employees, agents, consultants, contractors, subcontractors, vehicles, trucks, trailers, heavy machinery, equipment, materials, and all other items reasonably necessary or convenient for achieving Grantee's underlying purposes. "Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. "Agreement" means this Easement, License and Attachment Agreement. "Asset Sale Agreement" has the meaning set forth in the first recital of this Agreement, as such Asset Sale Agreement may be amended or modified. "Connection Agreement" means the Interconnection Agreement (Potomac River), dated as of __________, 2000, between Pepco and Generator. "Distribution of Electric Current" means local transmission and distribution of electricity to Pepco's end users. "Distribution Facilities" means towers, lines of towers, poles, lines of poles, supporting structures, cables, crossarms, overhead and underground wires, guys, braces, ducts, conduits, cables, anchors, lightning protective wires, and all related above-ground and underground facilities, appurtenances and equipment, including all additions, replacements and expansions thereto, now or hereafter installed or located on the Generator's Real Property for Distribution of Electric Current. Distribution Facilities do not include Transmission Facilities. "Effective Date" has the meaning set forth in Section 8.l. "FERC" means the Federal Energy Regulatory Commission or its successors. 103 "Generating Facilities" means the Station and any additional generating plants, turbines or other generating facilities constructed by Generator after the Effective Date at the site of the Station. "Generator's Improvements" shall have the meaning given it by the first recital of the Agreement. "Generator" shall have the meaning set forth in the introductory paragraph of this Agreement and shall include its permitted successors and assigns. "Generator's Leasehold Property" means the real property described in Exhibit A. "Good Utility Practice" shall have the meaning given it by the Connection Agreement. "Grantee" means the Party or Parties who enjoy the principal benefit of the referenced easement, license, right (including attachment rights) privilege or right-of-way. "Grantor" means the owner or owners of the property and/or improvement granting the referenced easement, license, right (including attachment rights), privilege or right-of-way. "Interconnection Service" shall have the meaning given it by the Connection Agreement. "Non-Leased Pepco Real Property" means the real property described in Exhibit C, and any improvements thereto now or hereafter situated thereon. "Party" or "Parties" shall have the meaning set forth in the introductory paragraph of this Agreement. "Pepco" shall have the meaning set forth in the introductory paragraph of this Agreement and shall include its permitted successors and assigns. "Pepco Real Property" means the real property described in Exhibit B, and any improvements or betterments thereto now or hereinafter situated thereon. "Qualified Personnel" means individuals who possess any required licenses and trained for their positions and duties by Generator and/or Pepco pursuant to Good Utility Practice. "State" means the Commonwealth of Virginia. "Station" means the Potomac River Station as defined in the Asset Sale Agreement. 104 "Transmission of Electric Current" means the transmission of such current typically over long distances and at voltages not commonly used for service to end use customers. "Transmission Facilities" means towers, lines of towers, poles, lines of poles, supporting structures, cables, crossarms, overhead and underground wires, guys, braces, ducts, conduits, cables, anchors, lightning protective wires, and all related above-ground and underground facilities, appurtenances and equipment, including all additions, replacements and expansions thereto, now or hereafter installed or located on the Generator's Real Property and/or which Pepco may reasonably require now and from time to time on the Generator's Real Property for the Transmission of Electric Current. Transmission Facilities do not include Distribution Facilities. "Transmission System" shall have the meaning set forth in the Connection Agreement. "Use" means to operate, maintain, repair, upgrade, clean, install, add to, alter, remove, inspect, construct, modify, restore, rebuild, replace, relocate and expand (but if any such addition, relocation or expansion would unreasonably or materially burden Grantor's Property, in each case, the express, prior written consent of Grantor shall be required, which consent shall not unreasonably be withheld, delayed or conditioned) (all of the foregoing to be in accordance with Good Utility Practice). 105 LIST OF EXHIBITS Exhibit A Generator's Leasehold Property Exhibit B Pepco Real Property Exhibit C Non-Leased Pepco Real Property 106 EXHIBIT C-2 AFTER RECORDING PARCEL ID# PLEASE RETURN TO: STREET ADDRESS: _________________ ________________ _________________ _________________ _________________ _________________ EASEMENT, LICENSE AND ATTACHMENT AGREEMENT (Dickerson Station) THIS EASEMENT, LICENSE AND ATTACHMENT AGREEMENT (the "Agreement"), is dated as of ______________, 2000, and is entered into by and between _______________________________________, a corporation organized and existing under the laws of the State of __________ and having an office at ____________________________ ("Generator") and POTOMAC ELECTRIC POWER COMPANY, a District of Columbia and Virginia corporation and having an office at 1900 Pennsylvania Avenue, N.W., Washington, DC 20068 ("Pepco"). Generator and Pepco may hereinafter be referred to individually as a "Party" and collectively as the "Parties." RECITALS A. Generator and Pepco have entered into an Asset Purchase and Sale Agreement for Generating and Related Assets (the "Asset Sale Agreement"), dated June 7, 2000, for the sale of Pepco's generating station known as the Dickerson Station (as defined in the Asset Sale Agreement), which is located on that certain parcel of real property which has been conveyed by Pepco to Generator pursuant to the Asset Sale Agreement by virtue of a deed recorded immediately prior hereto and is more particularly described in Exhibit "A" attached hereto (the "Generator's Real Property"). B. Pepco intends to continue to operate its transmission and distribution business on and from that certain parcel of real property adjoining the Generator's Real Property, which parcel has been retained by Pepco following the conveyances contemplated by the Asset Sale Agreement, and is more particularly described in Exhibit "B" attached hereto (the "Pepco Real Property"). C. Pepco will continue to own and operate certain assets used in the conduct of its transmission and distribution business which are located upon the Generator's Real Property, and Pepco requires Access (as defined below) to, and certain other rights with respect to, the Generator's Real Property in connection therewith. Generator, in the operation and conduct of its generation business, will require Access to, and certain other rights with respect to, the Pepco Real Property. Furthermore, Pepco and Generator have entered into an Interconnection Agreement (the "Connection Agreement"), dated as of __________, 2000, pursuant to which Pepco has agreed to provide certain Interconnection Service to Generator required for Generator's conduct of its generation business at Dickerson Station. 107 D. In order for the Parties each to (i) enjoy the full benefit of their respective property rights, real or personal, and conduct their respective businesses thereat (ii) fulfill legal requirements, and (iii) comply with their respective agreements under the Connection Agreement, each Party requires certain easements, licenses, rights-of-way and/or attachment rights in, on, over and above, or with respect to, real and or personal property of the other Party. AGREEMENT NOW, THEREFORE, the Parties, in consideration of the mutual covenants and agreements contained herein and in the Asset Sale Agreement and the Connection Agreement, and for One Dollar ($1.00) and other good and valuable consideration, the receipt whereof and sufficiency of which are hereby acknowledged, each intending to be legally bound and to bind their respective successors and assigns, hereby mutually agree as follows: 1. DEFINITIONS 1.1 Definitions. Any capitalized terms which are used but not defined in the body of this Agreement shall have the meanings given to such terms in the attached Schedule 1.1. 2. EASEMENTS 2.1 Grant of Easements to Pepco. Generator does hereby give, grant, bargain, sell, assign and convey unto Pepco, the following easements on the Generator's Real Property for the following purposes: (a) A one hundred twenty-five (125) foot wide utility easement, as more particularly described in Exhibit "C" attached hereto, for the installation, operation, repair and maintenance of above and/or below ground power and other utility lines utilized in connection with the transmission and distribution business of Pepco (as now or hereafter conducted) and other functions as Pepco may determine from time to time. (b) An above ground easement as more particularly described in Exhibit "D" attached hereto, for connection of a 230kV circuit to Generator's start-up transformer and the operation, repair and maintenance of said connection. (c) An easement for the Use, operation and maintenance of the Retained Assets (as described in the Asset Sale Agreement) located upon the Generator's Real Property and any other equipment of any nature or kind retained by Pepco and located upon the Generator's Real Property, together with any other equipment used in connection with the foregoing (together with replacements thereof and substitutions therefor). 108 (d) An easement which enables Pepco to keep and maintain in their present locations, and operate, any Transmission Facilities, Distribution Facilities and other assets owned by Pepco and located upon the Generator's Real Property, together with an easement for all purposes reasonably deemed necessary or convenient by Pepco to exercise any right or fulfill any obligation under the Connection Agreement, including the right to Use any improvements constructed, maintained or installed in connection therewith. (e) An easement of Access to those certain generating buildings (and any replacements thereof) located upon the Generator's Real Property in and upon which certain of Pepco's Distribution Facilities and Transmission Facilities are located. Such easement shall include, without limitation, the right to have keys, access codes or other access methods necessary to enter any of such generating buildings. Furthermore, the exercise of the easement right set forth in this subparagraph shall be subject to the provisions of the Connection Agreement including, without limitation, Section 3.3 thereof. (f) An easement of Access to the Generator's Real Property for the purposes of exercising any of the rights granted in this Section 2.l, in Section 2.3(b)(viii) hereof, in the Connection Agreement or the Asset Sale Agreement. (g) An easement of Access to, and the right to use, the parking lots, access roads, driveways and other such facilities located upon the Generator's Real Property. (h) Pepco's exercise of the rights, easements, privileges and licenses granted to it pursuant to this Section 2.1 shall be limited to Qualified Personnel or employees of contractors employed by Pepco who, in either event, are under Pepco's and/or its contractors' direct supervision and whose duties include, or who are engaged for the purpose of, Use of the rights granted pursuant to this Section 2.1. (i) The easements granted pursuant to this Section 2.1 shall expressly include Pepco's right to lease, license or otherwise permit Affiliates or third parties to use Pepco's facilities upon such terms and for such purposes as Pepco may determine from time to time, subject to the terms and conditions of this Agreement. 2.2 Reservation by Generator of Certain Rights. Generator reserves to itself, from the easements granted pursuant to Section 2.1 hereof, the following rights, subject, however, to the provisions of the final paragraph of this Section 2.2: (a) the right to (i) keep and maintain Generator's Real Property and all improvements and facilities owned by Generator and located upon the Generator's Real Property in their present locations, and (ii) operate and maintain all improvements and facilities owned by Generator and located upon the Generator's Real Property in a manner consistent with past practice; and 109 (b) the right to have Access to all portions of the Generator's Real Property for all purposes deemed reasonably necessary or convenient by Generator in the operation and conduct of its generation business or in order to perform any act permitted, or fulfill any obligation of Generator, under the Connection Agreement, including maintenance of the Generator's Real Property in the manner described in the Connection Agreement. (c) Generator's exercise of the rights reserved to Generator in this Section 2.2, and the rights, privileges and licenses granted to Generator in Section 2.3 shall be exclusively limited to Qualified Personnel or employees of contractors employed by Generator who, in either event, are under Generator's and/or its contractors' direct supervision and whose duties include, or who are engaged for the purpose of, Use of the property described in clause (a) of this Section. 2.3 Grant of Easements, Right, Privilege and License from Pepco to Generator. (a) Pepco does hereby grant to Generator the following easements, rights, privileges and licenses on and with respect to the Pepco Real Property: (i) An easement of Access to and upon the Pepco Real Property from Martinsburg Road (or other public right of way) for ingress and egress to Dickerson Station and the other Generating Facilities. (ii) An easement which enables Generator to keep and maintain in their present locations, and operate, any Generating Facilities and other assets owned by Generator and located upon the Pepco Real Property. (ii) An easement which enables Generator to keep and maintain in their present locations, and operate, any Generating Facilities and other assets owned by Generator and located upon the Pepco Real Property. (iii) An easement of Access to and upon the Pepco Real Property for the purposes of exercising any of the rights granted in the Connection Agreement or the Asset Sale Agreement. (b) In addition, but without limitation of Generator's rights pursuant to the Connection Agreement, Pepco agrees to make available to Generator (at no cost to Generator, except as provided below) Pepco's master station voltage control equipment (the "Equipment") located at Dickerson Station upon the Generator's Real Property during the term of this Agreement, subject to the following terms and conditions, and Generator agrees to comply with such terms and conditions: (i) Generator's operation of the Equipment shall at all times be subject to that certain Agreement of Sale and Lease dated as of November 30, 1994 between NationsBank Trust Company, National Association and Pepco (the "Control Center Lease"), and Generator shall comply with the terms and conditions thereof with respect to the use of the Equipment (including keeping the Equipment free 110 and clear of any liens, claims or encumbrances of whatever nature, and identifying the Equipment as being owned by Pepco, and shall not modify, alter, remove or add to the Equipment); (ii) Generator shall operate and maintain the Equipment in accordance with Good Utility Practice; (iii) Generator shall be responsible for all operating, repair and maintenance costs, taxes and the like with respect to the Equipment, and shall reimburse Pepco promptly upon invoicing for any such costs paid by Pepco; (iv) Generator's Access to the Equipment shall be in accordance with this Agreement; (v) Generator's right to operate the Equipment shall terminate in the event of actual or constructive loss of the Equipment, damage rendering the Equipment beyond repair or unfit for normal use, the condemnation or seizure of the Equipment, the obsolescence of the Equipment or the material breach by Generator of any of its covenants in this Section 2.3(b); (vi) Pepco shall have no obligation to Generator with respect to the Equipment other than to permit Access to and operation of the Equipment in accordance with this Section 2.3(b); and (vii) The obligations of Generator under Section 7.4 (maintenance of liability insurance coverage) and Section 7.1 (indemnification) shall be applicable to the Equipment. (viii) Pepco shall have Access to the Equipment for purposes of complying with the terms and conditions of the Control Center Lease and as necessary to perform any of the obligations of Generator pursuant to this subparagraph (b) above to the extent the same are not timely performed by Generator. 2.4 General Scope of Easements. (a) Except as otherwise provided in Sections 2.2 and 2.3 above and Section 2.4(b) below, each easement and each right, privilege and license granted hereby is and shall be a perpetual grant, transfer, conveyance and right of Access to and Use (subject to the terms of this Agreement) to the Grantee thereof and to any future owner of 111 the real property, improvements and facilities benefited thereby. Notwithstanding the foregoing, all easements, rights, privileges and licenses granted by this Agreement are and shall be subject to the terms and conditions of the Connection Agreement, and in the event of any inconsistency between the terms and conditions of the Connection Agreement and the terms of this Agreement, the terms of the Connection Agreement shall control. (b) Any easement or right, privilege and license granted hereunder for purposes of enabling a Party to exercise any right or fulfill any obligation set forth in the Connection Agreement will continue for the term of the Connection Agreement, and thereafter if and to the extent that the right or obligation (i) shall by its express terms survive the termination or expiration of the Connection Agreement or (ii) is necessary for the conduct of business by Grantee. In the event of the termination or expiration of an easement or right, privilege and license granted hereunder for purposes of enabling a Grantee to exercise any right or fulfill any obligation set forth in the Connection Agreement, all equipment and facilities installed or maintained by such Grantee on the real property of the other Party pursuant to said terminated or expired easement or right, privilege and license shall, at the request of the other Party, be removed at the sole cost and expense of such Grantee, and such Grantee shall, at its sole cost and expense repair any damage to the real property and/or equipment and facilities of the other Party damaged as a result of such removal. (c) All equipment and facilities installed or maintained by Grantee pursuant to an easement or right, privilege and license granted hereunder shall be maintained by Grantee in accordance with Good Utility Practice and the Connection Agreement, and Grantee shall make all repairs and replacements necessary to keep such equipment and facilities in such condition. (d) Generator may not Use any portion of Generator's Real Property burdened by any easement, right or privilege granted to Pepco hereunder if such Use would materially adversely affect the Use and enjoyment by Pepco of the rights granted to it hereunder, or materially increase the costs or risks associated with such Use. (e) All easements granted herein shall be deemed easements appurtenant to the parcel of real property benefited thereby and shall run with such real property and shall be deemed covenants running with the real property burdened thereby. 2.5 Interpretation. The following shall apply in interpreting any easement and any right, privilege and license granted pursuant to this Agreement: (a) Each easement and each right, privilege and license granted herein is irrevocable except by written agreement of the parties. 112 (b) With respect to any easement created by this Agreement, the words "in," "upon," "to," "on," "over," "above," "through" and/or "under" shall be interpreted to include all of such terms. (c) Each easement and each right, privilege and license granted herein may be enjoyed without charge or fee to Grantee of the easement. (d) Each easement and each right, privilege and license granted herein is also a grant of the additional right of Access over Grantor's property to accomplish the purpose of such easement or right, privilege and license, to perform any obligations hereunder or in the Connection Agreement, and to comply with any legal requirements affecting Grantee or its property and/or improvements. (e) Exercise of any easement or any right, privilege and license granted hereunder permitting or requiring maintenance, repairs, alteration, restoration, rebuilding, construction, upgrading, cleaning, installation, removal, modification, replacement, expansion, or other work by Grantee upon the property or improvements of Grantor shall be subject to the following conditions: (i) Work upon the facilities and properties of either Party subject to this Agreement shall be permitted only to each Party's Qualified Personnel, and Access to such facilities and properties shall be permitted only to a Party's Qualified Personnel and such consultants, agents, contractors, subcontractors and invitees as any Party may select or permit; provided that any consultant, agent, contractor, subcontractor or invitee shall comply with all applicable provisions of this Agreement and the Connection Agreement. (ii) Work shall be performed using reasonable precautions to avoid unreasonable interference with the Use and enjoyment of Grantor's property and improvements. (iii) Except only as may be specifically provided to the contrary herein, Grantee shall not be liable for damage, if any, which may be caused by Grantee's normal and reasonable Use of any easement, or right, privilege or license granted hereunder. (iv) Following completion of the work, Grantee shall restore Grantor's property and improvements to the same or as good a condition as existed before the commencement of the work. (v) Any easement and any right, privilege and license granted herein which permits a Grantee to maintain its property, 113 equipment, facilities and appurtenance on the property and improvements owned by Grantor also includes the right to maintain in place on Grantor's property and improvements any and all wires and cables connecting such property, equipment, facilities, and appurtenances to (i) the devices, machinery and equipment which they measure, regulate and/or control, and (ii) power sources. (vi) Generator shall be solely responsible for the maintenance of any roads, paths and other means of entry or exit located upon either the Generator's Real Property or the Pepco Real Property that are commonly utilized by Generator and Pepco, and their respective employees, agents and contractors pursuant to this Agreement or the Connection Agreement. (f) Any easement granted pursuant to Section 2.1(a), (b), (c) or (d) includes the right to (i) trim, cut, treat and/or remove, by manual, mechanical, and chemical means, any and all trees, brush, structures and other obstructions within the easement area, as well as such trees, brush, structures and vegetation outside of the easement area deemed reasonably necessary or desirable by Pepco for the safe and secure operation of its facilities; and (ii) obtain Access to Generator's Real Property for the purpose of performing the aforementioned acts. 2.6 Rules and Regulations. Each Party may promulgate rules regulating the conduct of the other Party in the exercise of rights under this Agreement provided such rules and regulations do not unreasonably interfere with or impede the affected Party's rights and easements as set forth herein or in the Connection Agreement. 2.7 No Obstruction. (a) No Party hereto shall obstruct the easements or the rights, privileges and licenses granted or created pursuant to this Agreement or render them impassable or unusable in any way or otherwise in any way interfere with the right to the Use and enjoyment of the easements or rights, privileges and licenses granted or created pursuant to this Agreement. (b) No Party hereto shall make any changes to the topography or accesses on or to its respective property, including grading or drainage that could reasonably be expected to adversely affect another Party's facilities, common use drainage systems, or pollution control systems, or the exercise of any right or fulfillment of any obligation in this Agreement or in the Connection Agreement, without the prior written consent of the other Party which consent shall not unreasonably be withheld, delayed or conditioned. 114 3. TAXES, ASSESSMENTS AND OTHER CHARGES 3.1 Real Estate Taxes. Generator, with respect to the Generator's Real Property and Pepco, with respect to the Pepco Real Property, shall pay and discharge all of the following ("Real Estate Taxes") whether or not now within the contemplation of the Parties hereto: (i) all real estate taxes, assessments (both general and special), other governmental impositions and charges, taxes, rents, levies and sums of every kind or nature whatsoever, extraordinary as well as ordinary, as shall at any time be imposed by any governmental or public authority on, or become a lien in respect of, the Generator's Real Property or the Pepco Real Property, as the case may be, or any part thereof, or which may become due and payable with respect thereto, and any and all taxes assessments and charges levied, assessed or imposed upon the Generator's Real Property or the Pepco Real Property, as the case may be, in lieu of or in addition to, the foregoing, under or by virtue of any present or future laws, rules, requirements, orders, directives, ordinances or regulations of the United States of America or of the State or of any subdivision thereof, or of any lawful governmental authority whatsoever, and any interest or penalties thereon, and (ii) all other taxes (excluding gains, sales and income taxes but including occupancy taxes which are measured by income) measured by ownership of the Generator's Real Property or the Pepco Real Property, as the case may be. Generator shall pay and discharge all levies and assessments for water, water meter (including any expenses incident to the installation, repair or replacement of any water meter) and sewer and all rents with respect to water and sewer which provide service to the Generator's Real Property. 3.2 Personal Property Taxes. Generator and Pepco shall, respectively, pay and discharge all of the following ("Personal Property Taxes") whether or not now within the contemplation of the Parties hereto: all taxes and assessments which shall or may be charged, levied, assessed or imposed upon, or become a lien upon, the personal property of Generator or Pepco, as the case may be, Used in the operation or in connection with the business conducted at the Generator's Real Property or the Pepco Real Property, as the case may be. 3.3 Timing of Payment. Subject to the provisions of Section 3.5, Generator and Pepco shall each comply with its covenant to pay and discharge all Real Estate Taxes and Personal Property Taxes by paying all such taxes directly to the appropriate taxing authorities prior to the expiration of the period within which payment is permitted without penalty or interest. Generator and Pepco shall within twenty (20) days of written request of the other Party, produce the most recent official receipts from the appropriate taxing authorities evidencing such payment certified by Generator or Pepco, as the case may be, to the other Party hereto. 3.4 Cooperation with respect to Tax Statements. Generator and Pepco will cooperate with each other in obtaining and/or retaining any tax abatement for which the Generator's Real Property or Pepco Real Property may be eligible. Upon written request of the Party seeking an abatement, the other Party or Parties hereto will 115 execute and file any and all documents and instruments reasonably necessary to obtain and retain such abatement, without the assumption of any liabilities or obligations, provided that the Party seeking such abatement shall reimburse the cooperating Party or Parties for any reasonable expenses that such cooperating Party or Parties may incur in connection therewith. 3.5 Tax Contests. Generator, with respect to the Generator's Real Property, and Pepco, with respect to the Pepco Real Property: (a) May contest in good faith by appropriate proceedings diligently and continuously conducted, at its or their sole cost and expense, any Real Estate Tax or charge or Personal Property Tax or charge, or similar tax or charge and, where permitted by law, pay the same under protest. (b) Shall pay and discharge such contested items as finally adjudicated or settled, with interest and penalties, and all other charges directed to be paid in or by any such adjudication or settlement. (c) May, in its or their sole discretion, consolidate any proceeding to obtain a reduction in the assessed valuation with any similar proceeding or proceedings brought by it or them relating to any one or more other tax years. (d) Shall indemnify and hold the non-contesting Party harmless from and against all liability, loss, cost or expense arising out of the contest. 3.6 Refunds. Any refunds from any contest undertaken pursuant to Section 3.5 shall belong wholly to the Party or Parties that paid the tax. 4. MECHANICS' LIENS 4.1 Notice Regarding Labor and Material. Notice is hereby given that no Party hereto shall be liable for any labor or materials furnished or to be furnished to or for another Party hereto or to any other persons or entities claiming under such other Party on credit, and that no mechanics' or other lien for any such labor or material furnished to a Party or such other persons or entities shall attach to or affect any property interest of any other Party. 4.2 Disposition of Liens. (a) Pepco shall forthwith take such action necessary to discharge, remove or satisfy any lien filed against the Generator's Real Property or any portion thereof for any labor or materials furnished or to be furnished for or on behalf of Pepco, or any person or entity holding any portion thereof through or under Pepco. 116 (b) Generator shall forthwith take such action necessary to discharge, remove or satisfy any lien filed against the Pepco Real Property or any portion thereof for any labor or materials furnished or to be furnished for or on behalf of Generator, or any person or entity holding any portion thereof through or under Generator. (c) If either Pepco or Generator, as the case may be, shall fail to discharge, remove or satisfy any such lien which it is obligated to discharge, remove or satisfy hereunder within ten (10) days after notice of the existence of the lien has been given to such defaulting Party, the non-defaulting Party or parties may pay the amount of such lien or discharge the same by deposit or bonding, and the amount so paid or deposited, or the premium paid for such bond, with interest at the rate provided for defaults in Section 6.3 hereof, shall be paid by the defaulting Party upon demand to the non-defaulting Party who effected such cure. (d) The defaulting Party shall defend, indemnify and save harmless the non-defaulting Party from and against all liability, loss, cost or expense (including reasonable attorneys' fees) arising out of any liens which the defaulting Party is obligated to discharge, remove or satisfy. 5. CONDEMNATION 5.1 Right to Participate. In the event the Generator's Real Property or the Pepco Real Property, or any part thereof, shall be taken in condemnation proceedings or by exercise of any right of eminent domain or any agreement with those authorized to exercise such right (any such matter being hereinafter referred to as a "Taking" or property "Taken"), whether such Taking be a permanent taking or a temporary Taking, any person or entity having an interest in the award or awards shall have the right to participate in any such condemnation proceedings or agreement for the purpose of protecting its interest hereunder. Each Party so participating shall pay its own expenses. 5.2 Total Taking. A "Total Taking" shall be deemed to have occurred as to the property of any Party (which means the Generator's Real Property, as to Generator, and the Pepco Real Property, as to Pepco) when the entire property of such Party shall be Taken or a substantial part of such property shall be Taken and the untaken portion of the property would, following the completion of restoration, be unsuitable for the operation and the Use thereof in the manner so operated and Used prior to the Taking. Upon a Total Taking, this Agreement shall terminate with respect to the property Taken except with respect to the disposition of the award and this Agreement shall continue with respect to the property not Taken. 5.3 Disposition of Award. In the event of a Taking, each Party shall be entitled to share in the awards to the extent of its interest in the property subject to the 117 Taking, and for consequential damages to and dilution of value of the relevant property not so Taken. 5.4 Notice of Taking. In the event the Generator's Real Property or the Pepco Real Property, or any part thereof, shall be the subject of any condemnation proceedings or the subject of any eminent domain proceedings, and if any Party shall receive actual notice of such proceedings, the Party receiving such notice shall notify the other Party of the existence of such proceedings. Such notification shall occur within thirty (30) days of the receipt of such actual notice. 6. DEFAULTS 6.1 Events of Default. Each and every one of the following events shall constitute an Event of Default ("Event of Default') under this Agreement: (a) If a Party fails to make any payment due within twenty (20) days of written demand for such payment; (b) If a Party fails, within twenty (20) days of written notice from a Party, to make any payment due from such Party to any third party and such failure could result in the imposition of a lien or other encumbrance on the property or improvements of a Party, unless the payment of such amount is contested in accordance with Section 3.5 hereof, in which case, the provisions of Section 3.5 shall control; and (c) If a Party fails to perform any material non-monetary obligations hereunder, and said Party fails to cure such default within thirty (30) days of receipt of written notice stating with particularity the nature of the default; provided, however, if such default is of such a nature that it cannot be cured within thirty (30) days following receipt of such notice, an Event of Default shall not have occurred if the defaulting Party shall within such thirty (30) days commence the necessary cure and shall at all times thereafter diligently and continuously prosecute such cure to completion. 6.2 Right of Self Help. A non-defaulting Party may at its election following the occurrence of a non-monetary Event of Default and the thirtieth (30th) day after the receipt of the written notice specified in paragraph 6.1(c) hereof, undertake the cure of such default on behalf of the defaulting Party. A non-defaulting Party is granted an easement to enter upon, through or under the property or improvements of the defaulting Party to effect such cure. Following the occurrence of an Event of Default involving the payment of money to a person or entity not Party to this Agreement, a non-defaulting Party may make such payment on behalf of the defaulting Party. All monies paid by the non-defaulting Party and all reasonable costs and expenses (including, reasonable attorneys' fees) incurred by it, as the case may be, in effecting such cure or payment, shall be paid by the defaulting Party upon written demand, together with interest from the date of such 118 demand at the rate set forth in Section 6.3. This Section 6.2 shall not limit Pepco's self-help rights pursuant to Section 2.3(b). 6.3 Interest. Following the occurrence of an Event of Default involving the nonpayment of money by the defaulting Party to the non-defaulting Party, all monies owed to the non-defaulting party shall bear interest at the rate equal to one and one-half percent (1.5%) per month accruing on the due date, provided, however, that such late payment charge shall not exceed the maximum charge which may be collected under State law. 6.4 Enforcement Rights. In addition to any other rights expressly set forth in this Agreement, but without limitation, enforcement of this Agreement may be had by legal or equitable proceedings against any defaulting Party either to specifically enforce, restrain or enjoin the violation of any restriction, covenant, agreement, term, representation or warranty herein contained or to recover damages. The above notwithstanding, termination of this Agreement shall not be available as a remedy in any proceedings against any defaulting Party. 6.5 No Forfeiture. Except by enforcement of a judgment lien against such property, nothing contained in this Agreement shall create any reversion, condition or right of re-entry or other provisions for forfeiture under which any Party can be cut off, subordinated or otherwise disturbed in the possession of its property. 6.6 Independent Covenants. None of the rights and easement granted by this Agreement and none of the performances required by this Agreement shall be dependent, upon the performance of any other term, promise, or condition of this Agreement or any documents executed concurrently or in connection with this Agreement, and such rights, easement and requirements or performance shall continue in effect irrespective of whether anything else in this Agreement or such other documents has been breached or has been terminated. The separateness and independent survival of the right, easements and requirements of performance under this Agreement are essential terms hereof without which this Agreement would not have been made. 7. INDEMNIFICATION AND INSURANCE 7.1 Generator's Indemnification. Generator shall indemnify, hold harmless, and defend Pepco and its Affiliates, as the case may be, and their respective officers, directors, employees, agents, contractors, subcontractors, invitees, successors and permitted assigns from and against any and all claims, liabilities, costs, damages, and expenses (including, without limitation, reasonable attorney and expert fees, and disbursements incurred by any of them in any action or proceeding between Pepco and a third party or Generator) for damage to property of unaffiliated third parties, injury to or death of any person, including Pepco's employees or any third parties, to the extent caused, by the breach of this Agreement by Generator or the negligence or willful misconduct of 119 Generator's and/or its officers, directors, employees, agents, contractors, subcontractors or invitees arising out of or connected with Generator's performance of this Agreement, or the exercise by Generator of its rights hereunder. 7.2 Pepco's Indemnification. Pepco shall indemnify, hold harmless, and defend Generator and its Affiliates, as the case may be, and their respective officers, directors, employees, agents, contractors, subcontractors, invitees, successors and permitted assigns from and against any and all claims, liabilities, costs, damages, and expenses (including, without limitation, reasonable attorney and expert fees, and disbursements incurred by any of them in any action or proceeding between Generator and a third party or Pepco) for damage to property of unaffiliated third parties, injury to or death of any person, including Generator's employees or any third parties, to the extent caused by the breach of this Agreement by Pepco or the negligence or willful misconduct of Pepco and/or its officers, directors, employees, agents, contractors, subcontractors or invitees arising out of or connected with Pepco's performance of this Agreement, or the exercise by Pepco of its rights hereunder. 7.3 Survival. The provisions of Sections 7.1 and 7.2 shall survive termination, cancellation, suspension, completion or expiration of this Agreement. 7.4 Insurance Coverage. The Parties shall maintain at their own cost the following insurance: (a) standard Commercial General Liability insurance with limitations not less than One Hundred Million Dollars ($100,000,000.00)in the aggregate; (b) All-Risk Property insurance in amounts not less than one hundred percent (100%) of the full replacement cost of the improvements located upon each Party's real property; (c) Worker's compensation insurance as required by prevailing law and Employer's liability insurance with limits of not less than Twenty-five Million Dollars ($25,000,000.00); and (d) such other insurance as is customary in the electric utility industry. 7.5 Certificate of Insurance. The Parties agree to furnish each other with certificates of insurance evidencing the insurance coverage obtained in accordance with this Article 7, and the Parties agree to notify and send copies to the other of any policies maintained hereunder upon written request by a Party. Each Party must notify the other Party within five (5) business days of receiving notice of cancellation, change, amendment or renewal of any insurance policy required pursuant to Section 7.4 above. 7.6 Additional Insureds and Waiver. Each Party and its affiliates shall be named as additional insureds on the general liability insurance policies obtained in accordance with Section 7.4, above, as regards liability under this Agreement; and each general liability insurance policy shall contain a waiver of subrogation and each Party shall waive its rights of recovery against the other for any loss or damage covered by such policy. 8. MISCELLANEOUS 120 8.1 Effective Date. This Agreement will be effective on the Closing Date pursuant to the Asset Sale Agreement (the "Effective Date"). 8.2 Exhibits. All exhibits attached to this Agreement are part of this Agreement and the material contained in such exhibits shall be construed and interpreted as if contained within the text of the Agreement. 8.3 Headings. The Article and Section headings of this Agreement are for convenience and reference only and in no way define, limit or describe the scope and intent of this Agreement, nor in any way affect this Agreement. 8.4 Interpretation. When a reference is made in this Agreement to an Article, Section, Schedule or Exhibit, such reference shall be to an Article or Section of, or Schedule or Exhibit to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation" or equivalent words. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any agreement, instrument, statute, regulation, rule or order defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument, statute, regulation, rule or order as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes, regulations, rules or orders) by succession of comparable successor statutes, regulations, rules or orders and references to all attachments thereto and instruments incorporated therein. References to a person are also to its permitted successors and assigns. Each Party acknowledges that it has been represented by counsel in connection with the review and execution of this Agreement and, accordingly, there shall be no presumption that this Agreement or any provision hereof be construed against the Party that drafted this Agreement. 8.5 GOVERNING LAW. EXCEPT WITH RESPECT TO THE CREATION, PERFECTION AND ENFORCEMENT OF THE REAL PROPERTY INTERESTS CREATED HEREUNDER, WHICH SHALL BE GOVERNED AND CONSTRUED BY THE LAWS OF THE STATE, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE DISTRICT OF COLUMBIA EXCLUSIVE OF ITS CHOICE OF LAW RULES. 8.6 Entire Agreement. This Agreement, the Asset Sale Agreement, the Confidentiality Agreement (as defined in the Asset Sale Agreement) and the Ancillary 121 Agreements (as defined in the Asset Sale Agreement) including the Exhibits, Schedules, documents, certificates and instruments referred to herein or therein and other contracts, agreements and instruments contemplated hereby or thereby, embody the entire agreement and understanding of the Parties in respect of the transactions contemplated by this Agreement. There are no restrictions, promises, representations, warranties, covenants or undertakings other than those expressly set forth or referred to herein or therein.. 8.7 Amendment and Modification, Extension, Waiver. This Agreement may be amended, modified or supplemented only by an instrument in writing signed on behalf of each of the Parties. Either Party may (i) extend the time for the performance of any of the obligations or other acts of the other Party, (ii) waive any inaccuracies in the representations and warranties of the other Party contained in this Agreement or (iii) waive compliance by the other Party with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a Party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such Party. The failure of a Party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. 8.8 Binding Effect. The covenants, conditions, restrictions, encumbrances, easements, license and agreements set forth in this Agreement shall attach to, burden, and run with the land and the Generator's Real Property and the Pepco Real Property or the applicable portion or portions thereof, and shall be appurtenant to the Generator's Property or the Pepco Real Property, as appropriate and, together with the remainder of this Agreement, shall be binding upon the Parties hereto and their respective successors, assigns, grantees, transferees and tenants and, together with the remainder of this Agreement, shall inure to the benefit and Use of the Parties hereto and their respective heirs, successors, assigns, grantees, transferees and tenants. Each Grantee of any portion of or interest in the property and each mortgagee which succeeds to the fee simple ownership of any portion of the property shall be deemed, by the acceptance of the deed conveying fee simple title to such person, to have agreed to perform each and every undertaking created hereunder attributable to the portion of the property in which such Grantee or mortgagee has acquired an interest. 8.9 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 8.10 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible to the 122 fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. 8.11 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given (as of the time of delivery or, in the case of a telecopied communication, of confirmation) if delivered personally, telecopied (which is confirmed) or sent by overnight courier (providing proof of delivery) to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice): if to Pepco, to: Potomac Electric Power Company 1900 Pennsylvania Avenue, N.W. Washington, D.C. 20068 Telecopier: (202) 261-7889 Attention: William T. Torgerson, General Counsel with a copy to: Dickstein Shapiro Morin & Oshinsky LLP 2101 L Street, N.W. Washington, D.C. 20037 Telecopy No.: (202) 887-0689 Attention: Kenneth M. Simon, Esq. if to Generator, to: Southern Energy, Inc. 900 Ashwood Parkway Suite 500 Atlanta, Georgia 30338-4780 Telecopier: (770) 821-6575 Attention: with a copy to: Troutman Sanders LLP 1300 I Street, N.W. Suite 500 East Washington, DC 20005 Telecopier: (202) 274-2994 Attention: Benjamin L. Israel, Esq. 123 The names, titles and addresses of either Party in this section may be changed by written notification to the other Party. 8.12 Independent Contractor Status. Nothing in this Agreement shall be construed as creating any relationship between Pepco and Generator other than that of independent contractors. 8.13 Conflicts. Except with respect to the amendments, indemnification, liability, default and remedies provisions contained herein or as otherwise expressly provided herein, in the event of any conflict or inconsistency between the terms of this Agreement and the terms of the Asset Sale Agreement, the terms of the Asset Sale Agreement shall prevail. IN WITNESS WHEREOF, Pepco and Generator have caused this Agreement to be signed by their respective duly authorized officers as of the date first above written. POTOMAC ELECTRIC POWER COMPANY By: -------------------------------------- Name: ------------------------------------- Title: ------------------------------------ [GENERATOR] By: -------------------------------------- Name: ------------------------------------- Title: ------------------------------------ 124 STATE OF ) ) SS: COUNTY OF ) BEFORE ME, a Notary Public in and for said County and State, personally appeared _________________________, an ________________________, by _____________________, its ________ who _________ is personally known to me/ _______ and who acknowledged before me that he did sign the foregoing instrument and that the same is the free act and deed of said ______________, and his free act and deed personally and as such officer. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at __________, __________, this ____ day of _________, ____. ---------------------------------------- Notary Public My Commission Expires: STATE OF ) ) SS: COUNTY OF ) BEFORE ME, a Notary Public in and for said County and State, personally appeared ________________________, an ___________________, by ________________ its _____________________ who _______ is personally known to me/ ________ and who acknowledged before me that he did sign the foregoing instrument and that the same is the free act and deed of said corporation, and his free act and deed personally and as such officer. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at __________, __________, this ____ day of _________, ____. ---------------------------------------- Notary Public My Commission Expires: 125 Schedule 1.1 Definitions "Access" means, subject to the conditions set forth in this Agreement and a Party's right to impose reasonable security and safety restrictions protecting its officers, employees, agents, consultants, contractors, subcontractors, invitees, property and confidential information, full and unimpeded access, in common with Grantor over and through existing roads, paths, walkways, corridors, hallways, doorways, and other means of entry or exit, as exist now and from time to time on Grantor's property or, where no means of access exists, over and through those areas of Grantor's property or improvements which are (i) reasonably necessary or convenient for achieving Grantee's underlying purposes, and (ii) least likely, out of the alternatives reasonably available, to impede or damage the property or operation of any Party hereto. Access shall also include access and right-of-way for Grantee's employees, agents, consultants, contractors, subcontractors, vehicles, trucks, trailers, heavy machinery, equipment, materials, and all other items reasonably necessary or convenient for achieving Grantee's underlying purposes. "Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. "Agreement" means this Easement, License and Attachment Agreement. "Asset Sale Agreement" has the meaning set forth in the first recital of this Agreement, as such Asset Sale Agreement may be amended or modified. "Connection Agreement" means the Interconnection Agreement (Dickerson), dated as of __________, 2000, between Pepco and Generator. "Distribution of Electric Current" means local transmission and distribution of electricity to Pepco's end users. "Distribution Facilities" means towers, lines of towers, poles, lines of poles, supporting structures, cables, crossarms, overhead and underground wires, guys, braces, ducts, conduits, cables, anchors, lightning protective wires, and all related above-ground and underground facilities, appurtenances and equipment, including all additions, replacements and expansions thereto, now or hereafter installed or located on the Generator's Real Property for Distribution of Electric Current. Distribution Facilities do not include Transmission Facilities. "Effective Date" has the meaning set forth in Section 8.l. "FERC" means the Federal Energy Regulatory Commission or its successors. 126 "Generating Facilities" means the Station and any additional generating plants, turbines or other generating facilities constructed by Generator after the Effective Date at the site of the Station. "Generator" shall have the meaning set forth in the introductory paragraph of this Agreement and shall include its permitted successors and assigns. "Generator's Real Property" means the real property described in Exhibit A, and any improvements or betterments thereto now or hereinafter situated thereon "Good Utility Practice" shall have the meaning given it by the Connection Agreement. "Grantee" means the Party or Parties who enjoy the principal benefit of the referenced easement, license, right (including attachment rights) privilege or right-of-way. "Grantor" means the owner or owners of the property and/or improvement granting the referenced easement, license, right (including attachment rights), privilege or right-of-way. "Interconnection Service" shall have the meaning given it by the Connection Agreement. "Party" or "Parties" shall have the meaning set forth in the introductory paragraph of this Agreement. "Pepco" shall have the meaning set forth in the introductory paragraph of this Agreement and shall include its permitted successors and assigns. "Pepco Real Property" means the real property described in Exhibit B, and any improvements or betterments thereto nor or hereinafter situated thereon. "Qualified Personnel" means individuals who possess any required licenses and trained for their positions and duties by Generator and/or Pepco pursuant to Good Utility Practice. "State" means the State of Maryland. "Station" means the Dickerson Station as defined in the Asset Sale Agreement. "Transmission of Electric Current" means the transmission of such current typically over long distances and at voltages not commonly used for service to end use customers. "Transmission Facilities" means towers, lines of towers, poles, lines of poles, supporting structures, cables, crossarms, overhead and underground wires, guys, braces, ducts, conduits, cables, anchors, lightning protective wires, and all related above-ground and underground facilities, appurtenances and equipment, including all additions, replacements and expansions thereto, now or hereafter installed or located on the Generator's Real Property and/or which Pepco may reasonably require now and from time to time on the 127 Generator's Real Property for the Transmission of Electric Current. Transmission Facilities do not include Distribution Facilities. "Transmission System" shall have the meaning set forth in the Connection Agreement. "Use" means to operate, maintain, repair, upgrade, clean, install, add to, alter, remove, inspect, construct, modify, restore, rebuild, replace, relocate and expand (but if any such addition, relocation or expansion would unreasonably or materially burden Grantor's Property, in each case, the express, prior written consent of Grantor shall be required, which consent shall not unreasonably be withheld, delayed or conditioned) (all of the foregoing to be in accordance with Good Utility Practice). 128 LIST OF EXHIBITS Exhibit A Generator's Real Property Exhibit B Pepco Real Property Exhibit C 125 Foot Utility Easement Exhibit D Easement for Connection of 230kV Circuit 129 EXHIBIT C-3 AFTER RECORDING PARCEL ID# PLEASE RETURN TO: STREET ADDRESS: ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ EASEMENT, LICENSE AND ATTACHMENT AGREEMENT (Chalk Point Station) THIS EASEMENT, LICENSE AND ATTACHMENT AGREEMENT (the "Agreement"), is dated as of ______________, 2000, and is entered into by and between ________________________________, a corporation organized and existing under the laws of the State of __________ and having an office at __________________________________ ("Generator") and POTOMAC ELECTRIC POWER COMPANY, a District of Columbia and Virginia corporation and having an office at 1900 Pennsylvania Avenue, N.W., Washington, DC 20068 ("Pepco"). Generator and Pepco may hereinafter be referred to individually as a "Party" and collectively as the "Parties." RECITALS A. Generator and Pepco have entered into an Asset Purchase and Sale Agreement for Generating and Related Assets (the "Asset Sale Agreement"), dated June 7, 2000, for the sale of Pepco's generating station known as the Chalk Point Station (as defined in the Asset Sale Agreement), which is located on that certain parcel of real property which has been conveyed by Pepco to Generator pursuant to the Asset Sale Agreement by virtue of a deed recorded immediately prior hereto and is more particularly described in Exhibit "A" attached hereto (the "Generator's Real Property"). B. Pepco intends to continue to operate its transmission and distribution business on and from that certain parcel of real property adjoining the Generator's Real Property, which parcel has been retained by Pepco following the conveyances contemplated by the Asset Sale Agreement, and is more particularly described in Exhibit "B" attached hereto (the "Pepco Real Property"). C. Pepco will continue to own and operate certain assets used in the conduct of its transmission and distribution business which are located upon the Generator's Real Property, and Pepco requires Access (as defined below) to, and certain other rights with respect to, the Generator's Real Property in connection therewith. Generator, in the operation and conduct of its generation business, will require Access to, and certain other rights with respect to, the Pepco Real Property. Furthermore, Pepco and Generator have entered into an Interconnection Agreement (the "Connection Agreement"), dated as of __________, 2000, pursuant to which Pepco has agreed to provide certain Interconnection Service to Generator required for Generator's conduct of its generation business at Chalk Point Station. 130 D. In order for the Parties each to (i) enjoy the full benefit of their respective property rights, real or personal, and conduct their respective businesses thereat (ii) fulfill legal requirements, and (iii) comply with their respective agreements under the Connection Agreement, each Party requires certain easements, licenses, rights-of-way and/or attachment rights in, on, over and above, or with respect to, real and or personal property of the other Party. AGREEMENT NOW, THEREFORE, the Parties, in consideration of the mutual covenants and agreements contained herein and in the Asset Sale Agreement and the Connection Agreement, and for One Dollar ($1.00) and other good and valuable consideration, the receipt whereof and sufficiency of which are hereby acknowledged, each intending to be legally bound and to bind their respective successors and assigns, hereby mutually agree as follows: 1. DEFINITIONS 1.1 Definitions. Any capitalized terms which are used but not defined in the body of this Agreement shall have the meanings given to such terms in the attached Schedule 1.1. 2. EASEMENTS 2.1 Grant of Easements to Pepco. Generator does hereby give, grant, bargain, sell, assign and convey unto Pepco, the following easements on the Generator's Real Property for the following purposes: (a) An above ground and underground easement, as more particularly described in Exhibit "C" attached hereto, for the installation, operation, repair and maintenance of electrical connections and other facilities between the existing switchyard on Pepco Real Property and the existing combustion turbine-generator area on Generator's Real Property. (b) An easement as more particularly described in Exhibit "D" attached hereto, for two (2) 69kV overhead transmission lines from Pepco's switchyard area on Pepco Real Property to an existing Southern Maryland Electrical Cooperative switchyard on Generator's Real Property and the operation, repair and maintenance of said transmission lines. (c) An easement for the Use, operation and maintenance of the Retained Assets (as described in the Asset Sale Agreement) located upon the Generator's Real Property and any other equipment of any nature or kind retained by Pepco and located upon the Generator's Real Property, together with any other equipment used in 131 connection with the foregoing (together with replacements thereof and substitutions therefor). (d) An easement which enables Pepco to keep and maintain in their present locations, and operate, any Transmission Facilities, Distribution Facilities and other assets owned by Pepco and located upon the Generator's Real Property, together with an easement for all purposes reasonably deemed necessary or convenient by Pepco to exercise any right or fulfill any obligation under the Connection Agreement, including the right to Use any improvements constructed, maintained or installed in connection therewith. (e) An easement of Access to those certain generating buildings (and any replacements thereof) located upon the Generator's Real Property in and upon which certain of Pepco's Distribution Facilities and Transmission Facilities are located. Such easement shall include, without limitation, the right to have keys, access codes or other access methods necessary to enter any of such generating buildings. Furthermore, the exercise of the easement right set forth in this subparagraph shall be subject to the provisions of the Connection Agreement including, without limitation, Section 3.3 thereof. (f) An easement of Access to the Generator's Real Property for the purposes of exercising any of the rights granted in this Section 2.l, in Section 2.3(b)(viii) hereof, in the Connection Agreement or the Asset Sale Agreement. (g) An easement of Access to, and the right to use, the parking lots, access roads, driveways and other such facilities located upon the Generator's Real Property. (h) Pepco's exercise of the rights, easements, privileges and licenses granted to it pursuant to this Section 2.1 shall be limited to Qualified Personnel or employees of contractors employed by Pepco who, in either event, are under Pepco's and/or its contractors' direct supervision and whose duties include, or who are engaged for the purpose of, Use of the rights granted pursuant to this Section 2.1. (i) The easements granted pursuant to this Section 2.1 shall expressly include Pepco's right to lease, license or otherwise permit Affiliates or third parties to use Pepco's facilities upon such terms and for such purposes as Pepco may determine from time to time, subject to the terms and conditions of this Agreement. 2.2 Reservation by Generator of Certain Rights. Generator reserves to itself, from the easements granted pursuant to Section 2.1 hereof, the following rights, subject, however, to the provisions of the final paragraph of this Section 2.2: (a) the right to (i) keep and maintain Generator's Real Property and all improvements and facilities owned by Generator and located upon the Generator's Real Property in their present locations, and (ii) operate and maintain all 132 improvements and facilities owned by Generator and located upon the Generator's Real Property in a manner consistent with past practice; and (b) the right to have Access to all portions of the Generator's Real Property for all purposes deemed reasonably necessary or convenient by Generator in the operation and conduct of its generation business or in order to perform any act permitted, or fulfill any obligation of Generator, under the Connection Agreement, including maintenance of the Generator's Real Property in the manner described in the Connection Agreement. (c) Generator's exercise of the rights reserved to Generator in this Section 2.2, and the rights, privileges and licenses granted to Generator in Section 2.3 shall be exclusively limited to Qualified Personnel or employees of contractors employed by Generator who, in either event, are under Generator's and/or its contractors' direct supervision and whose duties include, or who are engaged for the purpose of, Use of the property described in clause (a) of this Section. 2.3 Grant of Easements, Right, Privilege and License from Pepco to Generator. (a) Pepco does hereby grant to Generator the following easements, rights, privileges and licenses on and with respect to the Pepco Real Property: (i) An easement, as described on Exhibit "E" attached hereto, for the operation and maintenance of an existing oil pipeline (to be used solely for the transmission of oil) on, under and across Pepco Real Property at two (2) locations. (ii) An easement, as described on Exhibit "F" attached hereto, for the operation and maintenance of an existing oil pipeline (to be used solely for the transmission of oil) on, under and across the Retained Assets. (iii) An easement which enables Generator to keep and maintain in their present locations, and operate, any Generating Facilities and other assets owned by Generator and located upon the Pepco Real Property. (iv) An easement of Access to and upon the Pepco Real Property for the purposes of exercising any of the rights granted in the Connection Agreement or the Asset Sale Agreement. (b) In addition, but without limitation of Generator's rights pursuant to the Connection Agreement, Pepco agrees to make available to Generator (at no cost to Generator, except as provided below) Pepco's master station voltage control equipment (the "Equipment") located at Chalk Point Station upon the Generator's Real Property during the term of this Agreement, subject to the following terms and conditions, and Generator agrees to comply with such terms and conditions: 133 (i) Generator's operation of the Equipment shall at all times be subject to that certain Agreement of Sale and Lease dated as of November 30, 1994 between NationsBank Trust Company, National Association and Pepco (the "Control Center Lease"), and Generator shall comply with the terms and conditions thereof with respect to the use of the Equipment (including keeping the Equipment free and clear of any liens, claims or encumbrances of whatever nature, and identifying the Equipment as being owned by Pepco, and shall not modify, alter, remove or add to the Equipment); (ii) Generator shall operate and maintain the Equipment in accordance with Good Utility Practice; (iii) Generator shall be responsible for all operating, repair and maintenance costs, taxes and the like with respect to the Equipment, and shall reimburse Pepco promptly upon invoicing for any such costs paid by Pepco; (iv) Generator's Access to the Equipment shall be in accordance with this Agreement; (v) Generator's right to operate the Equipment shall terminate in the event of actual or constructive loss of the Equipment, damage rendering the Equipment beyond repair or unfit for normal use, the condemnation or seizure of the Equipment, the obsolescence of the Equipment or the material breach by Generator of any of its covenants in this Section 2.3(b); (vi) Pepco shall have no obligation to Generator with respect to the Equipment other than to permit Access to and operation of the Equipment in accordance with this Section 2.3(b); (vii) The obligations of Generator under Section 7.4 (maintenance of liability insurance coverage) and Section 7.1 (indemnification) shall be applicable to the Equipment; and (viii) Pepco shall have Access to the Equipment for purposes of complying with the terms and conditions of the Control Center Lease and as necessary to perform any of the obligations of Generator pursuant to this subparagraph (b) above to the extent the same are not timely performed by Generator. 134 2.4 General Scope of Easements. (a) Except as otherwise provided in Sections 2.2 and 2.3 above and Section 2.4(b) below, each easement and each right, privilege and license granted hereby is and shall be a perpetual grant, transfer, conveyance and right of Access to and Use (subject to the terms of this Agreement) to the Grantee thereof and to any future owner of the real property, improvements and facilities benefited thereby. Notwithstanding the foregoing, all easements, rights, privileges and licenses granted by this Agreement are and shall be subject to the terms and conditions of the Connection Agreement, and in the event of any inconsistency between the terms and conditions of the Connection Agreement and the terms of this Agreement, the terms of the Connection Agreement shall control. (b) Any easement or right, privilege and license granted hereunder for purposes of enabling a Party to exercise any right or fulfill any obligation set forth in the Connection Agreement will continue for the term of the Connection Agreement, and thereafter if and to the extent that the right or obligation (i) shall by its express terms survive the termination or expiration of the Connection Agreement or (ii) is necessary for the conduct of business by Grantee. In the event of the termination or expiration of an easement or right, privilege and license granted hereunder for purposes of enabling a Grantee to exercise any right or fulfill any obligation set forth in the Connection Agreement, all equipment and facilities installed or maintained by such Grantee on the real property of the other Party pursuant to said terminated or expired easement or right, privilege and license shall, at the request of the other Party, be removed at the sole cost and expense of such Grantee, and such Grantee shall, at its sole cost and expense repair any damage to the real property and/or equipment and facilities of the other Party damaged as a result of such removal. (c) All equipment and facilities installed or maintained by Grantee pursuant to an easement or right, privilege and license granted hereunder shall be maintained by Grantee in accordance with Good Utility Practice and the Connection Agreement, and Grantee shall make all repairs and replacements necessary to keep such equipment and facilities in such condition. (d) Generator may not Use any portion of Generator's Real Property burdened by any easement, right or privilege granted to Pepco hereunder if such Use would materially adversely affect the Use and enjoyment by Pepco of the rights granted to it hereunder, or materially increase the costs or risks associated with such Use. (e) All easements granted herein shall be deemed easements appurtenant to the parcel of real property benefited thereby and shall run with such real property and shall be deemed covenants running with the real property burdened thereby. 2.5 Interpretation. The following shall apply in interpreting any easement and any right, privilege and license granted pursuant to this Agreement: 135 (a) Each easement and each right, privilege and license granted herein is irrevocable except by written agreement of the parties. (b) With respect to any easement created by this Agreement, the words "in," "upon," "to," "on," "over," "above," "through" and/or "under" shall be interpreted to include all of such terms. (c) Each easement and each right, privilege and license granted herein may be enjoyed without charge or fee to Grantee of the easement. (d) Each easement and each right, privilege and license granted herein is also a grant of the additional right of Access over Grantor's property to accomplish the purpose of such easement or right, privilege and license, to perform any obligations hereunder or in the Connection Agreement, and to comply with any legal requirements affecting Grantee or its property and/or improvements. (e) Exercise of any easement or any right, privilege and license granted hereunder permitting or requiring maintenance, repairs, alteration, restoration, rebuilding, construction, upgrading, cleaning, installation, removal, modification, replacement, expansion, or other work by Grantee upon the property or improvements of Grantor shall be subject to the following conditions: (i) Work upon the facilities and properties of either Party subject to this Agreement shall be permitted only to each Party's Qualified Personnel, and Access to such facilities and properties shall be permitted only to a Party's Qualified Personnel and such consultants, agents, contractors, subcontractors and invitees as any Party may select or permit; provided that any consultant, agent, contractor, subcontractor or invitee shall comply with all applicable provisions of this Agreement and the Connection Agreement. (ii) Work shall be performed using reasonable precautions to avoid unreasonable interference with the Use and enjoyment of Grantor's property and improvements. (iii) Except only as may be specifically provided to the contrary herein, Grantee shall not be liable for damage, if any, which may be caused by Grantee's normal and reasonable Use of any easement, or right, privilege or license granted hereunder. (iv) Following completion of the work, Grantee shall restore Grantor's property and improvements to the same or as good a 136 condition as existed before the commencement of the work. (v) Any easement and any right, privilege and license granted herein which permits a Grantee to maintain its property, equipment, facilities and appurtenances on the property and improvements owned by Grantor also includes the right to maintain in place on Grantor's property and improvements any and all wires and cables connecting such property, equipment, facilities, and appurtenances to (i) the devices, machinery and equipment which they measure, regulate and/or control, and (ii) power sources. (vi) Generator shall be solely responsible for the maintenance of any roads, paths and other means of entry or exit located upon either the Gemerator's Real Property or the Pepco Real Property that are commonly utilized by Generator and Pepco, and their respective employees, agents and contractors pursuant to this Agreement or the Connection Agreement. (f) Any easement granted pursuant to Section 2.1(a), (b), (c) or (d) includes the right to (i) trim, cut, treat and/or remove, by manual, mechanical, and chemical means, any and all trees, brush, structures and other obstructions within the easement area, as well as such trees, brush, structures and vegetation outside of the easement area deemed reasonably necessary or desirable by Pepco for the safe and secure operation of its facilities; and (ii) obtain Access to Generator's Real Property for the purpose of performing the aforementioned acts. 2.6 Rules and Regulations. Each Party may promulgate rules regulating the conduct of the other Party in the exercise of rights under this Agreement provided such rules and regulations do not unreasonably interfere with or impede the affected Party's rights and easements as set forth herein or in the Connection Agreement. 2.7 No Obstruction. (a) No Party hereto shall obstruct the easements or the rights, privileges and licenses granted or created pursuant to this Agreement or render them impassable or unusable in any way or otherwise in any way interfere with the right to the Use and enjoyment of the easements or rights, privileges and licenses granted or created pursuant to this Agreement. (b) No Party hereto shall make any changes to the topography or accesses on or to its respective property, including grading or drainage that could reasonably be expected to adversely affect another Party's facilities, common use drainage 137 systems, or pollution control systems, or the exercise of any right or fulfillment of any obligation in this Agreement or in the Connection Agreement, without the prior written consent of the other Party which consent shall not unreasonably be withheld, delayed or conditioned. 3. TAXES, ASSESSMENTS AND OTHER CHARGES 3.1 Real Estate Taxes. Generator, with respect to the Generator's Real Property and Pepco, with respect to the Pepco Real Property, shall pay and discharge all of the following ("Real Estate Taxes") whether or not now within the contemplation of the Parties hereto: (i) all real estate taxes, assessments (both general and special), other governmental impositions and charges, taxes, rents, levies and sums of every kind or nature whatsoever, extraordinary as well as ordinary, as shall at any time be imposed by any governmental or public authority on, or become a lien in respect of, the Generator's Real Property or the Pepco Real Property, as the case may be, or any part thereof, or which may become due and payable with respect thereto, and any and all taxes assessments and charges levied, assessed or imposed upon the Generator's Real Property or the Pepco Real Property, as the case may be, in lieu of or in addition to, the foregoing, under or by virtue of any present or future laws, rules, requirements, orders, directives, ordinances or regulations of the United States of America or of the State or of any subdivision thereof, or of any lawful governmental authority whatsoever, and any interest or penalties thereon, and (ii) all other taxes (excluding gains, sales and income taxes but including occupancy taxes which are measured by income) measured by ownership of the Generator's Real Property or the Pepco Real Property, as the case may be. Generator shall pay and discharge all levies and assessments for water, water meter (including any expenses incident to the installation, repair or replacement of any water meter) and sewer and all rents with respect to water and sewer which provide service to the Generator's Real Property. 3.2 Personal Property Taxes. Generator and Pepco shall, respectively, pay and discharge all of the following ("Personal Property Taxes") whether or not now within the contemplation of the Parties hereto: all taxes and assessments which shall or may be charged, levied, assessed or imposed upon, or become a lien upon, the personal property of Generator or Pepco, as the case may be, Used in the operation or in connection with the business conducted at the Generator's Real Property or the Pepco Real Property, as the case may be. 3.3 Timing of Payment. Subject to the provisions of Section 3.5, Generator and Pepco shall each comply with its covenant to pay and discharge all Real Estate Taxes and Personal Property Taxes by paying all such taxes directly to the appropriate taxing authorities prior to the expiration of the period within which payment is permitted without penalty or interest. Generator and Pepco shall within twenty (20) days of written request of the other Party, produce the most recent official receipts from the appropriate taxing authorities evidencing such payment certified by Generator or Pepco, as the case may be, to the other Party hereto. 138 3.4 Cooperation with Respect to Tax Statements. Generator and Pepco will cooperate with each other in obtaining and/or retaining any tax abatement for which the Generator's Real Property or Pepco Real Property may be eligible. Upon written request of the Party seeking an abatement, the other Party or Parties hereto will execute and file any and all documents and instruments reasonably necessary to obtain and retain such abatement, without the assumption of any liabilities or obligations, provided that the Party seeking such abatement shall reimburse the cooperating Party or Parties for any reasonable expenses that such cooperating Party or Parties may incur in connection therewith. 3.5 Tax Contests. Generator, with respect to the Generator's Real Property, and Pepco, with respect to the Pepco Real Property: (a) May contest in good faith by appropriate proceedings diligently and continuously conducted, at its or their sole cost and expense, any Real Estate Tax or charge or Personal Property Tax or charge, or similar tax or charge and, where permitted by law, pay the same under protest. (b) Shall pay and discharge such contested items as finally adjudicated or settled, with interest and penalties, and all other charges directed to be paid in or by any such adjudication or settlement. (c) May, in its or their sole discretion, consolidate any proceeding to obtain a reduction in the assessed valuation with any similar proceeding or proceedings brought by it or them relating to any one or more other tax years. (d) Shall indemnify and hold the non-contesting Party harmless from and against all liability, loss, cost or expense arising out of the contest. 3.6 Refunds. Any refunds from any contest undertaken pursuant to Section 3.5 shall belong wholly to the Party or Parties that paid the tax. 4. MECHANICS' LIENS 4.1 Notice Regarding Labor and Material. Notice is hereby given that no Party hereto shall be liable for any labor or materials furnished or to be furnished to or for another Party hereto or to any other persons or entities claiming under such other Party on credit, and that no mechanics' or other lien for any such labor or material furnished to a Party or such other persons or entities shall attach to or affect any property interest of any other Party. 4.2 Disposition of Liens. (a) Pepco shall forthwith take such action necessary to discharge, remove or satisfy any lien filed against the Generator's Real Property or any 139 portion thereof for any labor or materials furnished or to be furnished for or on behalf of Pepco, or any person or entity holding any portion thereof through or under Pepco. (b) Generator shall forthwith take such action necessary to discharge, remove or satisfy any lien filed against the Pepco Real Property or any portion thereof for any labor or materials furnished or to be furnished for or on behalf of Generator, or any person or entity holding any portion thereof through or under Generator. (c) If either Pepco or Generator, as the case may be, shall fail to discharge, remove or satisfy any such lien which it is obligated to discharge, remove or satisfy hereunder within ten (10) days after notice of the existence of the lien has been given to such defaulting Party, the non-defaulting Party or parties may pay the amount of such lien or discharge the same by deposit or bonding, and the amount so paid or deposited, or the premium paid for such bond, with interest at the rate provided for defaults in Section 6.3 hereof, shall be paid by the defaulting Party upon demand to the non-defaulting Party who effected such cure. (d) The defaulting Party shall defend, indemnify and save harmless the non-defaulting Party from and against all liability, loss, cost or expense (including reasonable attorneys' fees) arising out of any liens which the defaulting Party is obligated to discharge, remove or satisfy. 5. CONDEMNATION 5.1 Right to Participate. In the event the Generator's Real Property or the Pepco Real Property, or any part thereof, shall be taken in condemnation proceedings or by exercise of any right of eminent domain or any agreement with those authorized to exercise such right (any such matter being hereinafter referred to as a "Taking" or property "Taken"), whether such Taking be a permanent taking or a temporary Taking, any person or entity having an interest in the award or awards shall have the right to participate in any such condemnation proceedings or agreement for the purpose of protecting its interest hereunder. Each Party so participating shall pay its own expenses. 5.2 Total Taking. A "Total Taking" shall be deemed to have occurred as to the property of any Party (which means the Generator's Real Property, as to Generator, and the Pepco Real Property, as to Pepco) when the entire property of such Party shall be Taken or a substantial part of such property shall be Taken and the untaken portion of the property would, following the completion of restoration, be unsuitable for the operation and the Use thereof in the manner so operated and Used prior to the Taking. Upon a Total Taking, this Agreement shall terminate with respect to the property Taken except with respect to the disposition of the award and this Agreement shall continue with respect to the property not Taken. 140 5.3 Disposition of Award. In the event of a Taking, each Party shall be entitled to share in the awards to the extent of its interest in the property subject to the Taking, and for consequential damages to and dilution of value of the relevant property not so Taken. 5.4 Notice of Taking. In the event the Generator's Real Property or the Pepco Real Property, or any part thereof, shall be the subject of any condemnation proceedings or the subject of any eminent domain proceedings, and if any Party shall receive actual notice of such proceedings, the Party receiving such notice shall notify the other Party of the existence of such proceedings. Such notification shall occur within thirty (30) days of the receipt of such actual notice. 6. DEFAULTS 6.1 Events of Default. Each and every one of the following events shall constitute an Event of Default ("Event of Default") under this Agreement: (a) If a Party fails to make any payment due to a party hereto within twenty (20) days of written demand for such payment; (b) If a Party fails, within twenty (20) days of written notice from a Party, to make any payment due from such Party to any third party and such failure could result in the imposition of a lien or other encumbrance on the property or improvements of a Party, unless the payment of such amount is contested in accordance with Section 3.5 hereof, in which case, the provisions of Section 3.5 shall control; and (c) If a Party fails to perform any material non-monetary obligations hereunder, and said Party fails to cure such default within thirty (30) days of receipt of written notice stating with particularity the nature of the default; provided, however, if such default is of such a nature that it cannot be cured within thirty (30) days following receipt of such notice, an Event of Default shall not have occurred if the defaulting Party shall within such thirty (30) days commence the necessary cure and shall at all times thereafter diligently and continuously prosecute such cure to completion. 6.2 Right of Self Help. A non-defaulting Party may at its election following the occurrence of a non-monetary Event of Default and the thirtieth (30th) day after the receipt of the written notice specified in paragraph 6.1(c) hereof, undertake the cure of such default on behalf of the defaulting Party. A non-defaulting Party is granted an easement to enter upon, through or under the property or improvements of the defaulting Party to effect such cure. Following the occurrence of an Event of Default involving the payment of money to a person or entity not Party to this Agreement, a non-defaulting Party may make such payment on behalf of the defaulting Party. All monies paid by the non-defaulting Party and all reasonable costs and expenses (including, reasonable attorneys' fees) incurred by it, as the case may be, in effecting such cure or payment, shall be paid by 141 the defaulting Party upon written demand, together with interest from the date of such demand at the rate set forth in Section 6.3. This Section 6.2 shall not limit Pepco's self-help rights pursuant to Section 2.3(b). 6.3 Interest. Following the occurrence of an Event of Default involving the nonpayment of money by the defaulting Party to the non-defaulting Party, all monies owed to the non-defaulting party shall bear interest at the rate equal to one and one-half percent (1.5%) per month accruing on the due date, provided, however, that such late payment charge shall not exceed the maximum charge which may be collected under State law. 6.4 Enforcement Rights. In addition to any other rights expressly set forth in this Agreement, but without limitation, enforcement of this Agreement may be had by legal or equitable proceedings against any defaulting Party either to specifically enforce, restrain or enjoin the violation of any restriction, covenant, agreement, term, representation or warranty herein contained or to recover damages. The above notwithstanding, termination of this Agreement shall not be available as a remedy in any proceedings against any defaulting Party. 6.5 No Forfeiture. Except by enforcement of a judgment lien against such property, nothing contained in this Agreement shall create any reversion, condition or right of re-entry or other provisions for forfeiture under which any Party can be cut off, subordinated or otherwise disturbed in the possession of its property. 6.6 Independent Covenants. None of the rights and easement granted by this Agreement and none of the performances required by this Agreement shall be dependent, upon the performance of any other term, promise, or condition of this Agreement or any documents executed concurrently or in connection with this Agreement, and such rights, easement and requirements or performance shall continue in effect irrespective of whether anything else in this Agreement or such other documents has been breached or has been terminated. The separateness and independent survival of the right, easements and requirements of performance under this Agreement are essential terms hereof without which this Agreement would not have been made. 7. INDEMNIFICATION AND INSURANCE 7.1 Generator's Indemnification. Generator shall indemnify, hold harmless, and defend Pepco and its Affiliates, as the case may be, and their respective officers, directors, employees, agents, contractors, subcontractors, invitees, successors and permitted assigns from and against any and all claims, liabilities, costs, damages, and expenses (including, without limitation, reasonable attorney and expert fees, and disbursements incurred by any of them in any action or proceeding between Pepco and a third party or Generator) for damage to property of unaffiliated third parties, injury to or death of any person, including Pepco's employees or any third parties, to the extent caused, 142 by the breach of this Agreement by Generator or the negligence or willful misconduct of Generator and/or its officers, directors, employees, agents, contractors, subcontractors or invitees arising out of or connected with Generator's performance of this Agreement, or the exercise by Generator of its rights hereunder. 7.2 Pepco's Indemnification. Pepco shall indemnify, hold harmless, and defend Generator and its Affiliates, as the case may be, and their respective officers, directors, employees, agents, contractors, subcontractors, invitees, successors and permitted assigns from and against any and all claims, liabilities, costs, damages, and expenses (including, without limitation, reasonable attorney and expert fees, and disbursements incurred by any of them in any action or proceeding between Generator and a third party or Pepco) for damage to property of unaffiliated third parties, injury to or death of any person, including Generator's employees or any third parties, to the extent caused by the breach of this Agreement by Pepco or the negligence or willful misconduct of Pepco and/or its officers, directors, employees, agents, contractors, subcontractors or invitees arising out of or connected with Pepco's performance of this Agreement, or the exercise by Pepco of its rights hereunder. 7.3 Survival. The provisions of Sections 7.1 and 7.2 shall survive termination, cancellation, suspension, completion or expiration of this Agreement. 7.4 Insurance Coverage. The Parties shall maintain at their own cost the following insurance: (a) standard Commercial General Liability insurance with limitations not less than One Hundred Million Dollars ($100,000,000.00)in the aggregate; (b) All-Risk Property insurance in amounts not less than one hundred percent (100%) of the full replacement cost of the improvements located upon each Party's real property; (c) Worker's compensation insurance as required by prevailing law and Employer's liability insurance with limits of not less than Twenty-five Million Dollars ($25,000,000.00); and (d) such other insurance as is customary in the electric utility industry. 7.5 Certificate of Insurance. The Parties agree to furnish each other with certificates of insurance evidencing the insurance coverage obtained in accordance with this Article 7, and the Parties agree to notify and send copies to the other of any policies maintained hereunder upon written request by a Party. Each Party must notify the other Party within five (5) business days of receiving notice of cancellation, change, amendment or renewal of any insurance policy required pursuant to Section 7.4 above. 7.6 Additional Insureds and Waiver. Each Party and its affiliates shall be named as additional insureds on the general liability insurance policies obtained in accordance with Section 7.4, above, as regards liability under this Agreement; and each general liability insurance policy shall contain a waiver of subrogation and each Party shall waive its rights of recovery against the other for any loss or damage covered by such policy. 143 8. MISCELLANEOUS 8.1 Effective Date. This Agreement will be effective on the Closing Date pursuant to the Asset Sale Agreement (the "Effective Date"). 8.2 Exhibits. All exhibits attached to this Agreement are part of this Agreement and the material contained in such exhibits shall be construed and interpreted as if contained within the text of the Agreement. 8.3 Headings. The Article and Section headings of this Agreement are for convenience and reference only and in no way define, limit or describe the scope and intent of this Agreement, nor in any way affect this Agreement. 8.4 Interpretation. When a reference is made in this Agreement to an Article, Section, Schedule or Exhibit, such reference shall be to an Article or Section of, or Schedule or Exhibit to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation" or equivalent words. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any agreement, instrument, statute, regulation, rule or order defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument, statute, regulation, rule or order as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes, regulations, rules or orders) by succession of comparable successor statutes, regulations, rules or orders and references to all attachments thereto and instruments incorporated therein. References to a person are also to its permitted successors and assigns. Each Party acknowledges that it has been represented by counsel in connection with the review and execution of this Agreement and, accordingly, there shall be no presumption that this Agreement or any provision hereof be construed against the Party that drafted this Agreement. 8.5 GOVERNING LAW. EXCEPT WITH RESPECT TO THE CREATION, PERFECTION AND ENFORCEMENT OF THE REAL PROPERTY INTERESTS CREATED HEREUNDER, WHICH SHALL BE GOVERNED AND CONSTRUED BY THE LAWS OF THE STATE, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE DISTRICT OF COLUMBIA EXCLUSIVE OF ITS CHOICE OF LAW RULES. 144 8.6 Entire Agreement. This Agreement, the Asset Sale Agreement, the Confidentiality Agreement (as defined in the Asset Sale Agreement) and the Ancillary Agreements (as defined in the Asset Sale Agreement) including the Exhibits, Schedules, documents, certificates and instruments referred to herein or therein and other contracts, agreements and instruments contemplated hereby or thereby, embody the entire agreement and understanding of the Parties in respect of the transactions contemplated by this Agreement. There are no restrictions, promises, representations, warranties, covenants or undertakings other than those expressly set forth or referred to herein or therein. 8.7 Amendment and Modification, Extension, Waiver. This Agreement may be amended, modified or supplemented only by an instrument in writing signed on behalf of each of the Parties. Either Party may (i) extend the time for the performance of any of the obligations or other acts of the other Party, (ii) waive any inaccuracies in the representations and warranties of the other Party contained in this Agreement or (iii) waive compliance by the other Party with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a Party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such Party. The failure of a Party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. 8.8 Binding Effect. The covenants, conditions, restrictions, encumbrances, easements, license and agreements set forth in this Agreement shall attach to, burden, and run with the land and the Generator's Real Property and the Pepco Real Property or the applicable portion or portions thereof, and shall be appurtenant to the Generator's Property or the Pepco Real Property, as appropriate and, together with the remainder of this Agreement, shall be binding upon the Parties hereto and their respective successors, assigns, grantees, transferees and tenants and, together with the remainder of this Agreement, shall inure to the benefit and Use of the Parties hereto and their respective heirs, successors, assigns, grantees, transferees and tenants. Each Grantee of any portion of or interest in the property and each mortgagee which succeeds to the fee simple ownership of any portion of the property shall be deemed, by the acceptance of the deed conveying fee simple title to such person, to have agreed to perform each and every undertaking created hereunder attributable to the portion of the property in which such Grantee or mortgagee has acquired an interest. 8.9 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 8.10 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this 145 Agreement so as to effect the original intent of the Parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. 8.11 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given (as of the time of delivery or, in the case of a telecopied communication, of confirmation) if delivered personally, telecopied (which is confirmed) or sent by overnight courier (providing proof of delivery) to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice): if to Pepco, to: Potomac Electric Power Company 1900 Pennsylvania Avenue, N.W. Washington, D.C. 20068 Telecopier: (202) 261-7889 Attention: William T. Torgerson, General Counsel with a copy to: Dickstein Shapiro Morin & Oshinsky LLP 2101 L Street, N.W. Washington, D.C. 20037 Telecopy No.: (202) 887-0689 Attention: Kenneth M. Simon, Esq. if to Generator, to: Southern Energy, Inc. 900 Ashwood Parkway Suite 500 Atlanta, Georgia 30338-4780 Telecopier: (770) 821-6575 Attention: with a copy to: Troutman Sanders LLP 1300 I Street, N.W. Suite 500 East Washington, DC 20005 Telecopier: (202) 274-2994 Attention: Benjamin L. Israel, Esq. 146 The names, titles and addresses of either Party in this section may be changed by written notification to the other Party. 8.12 Independent Contractor Status. Nothing in this Agreement shall be construed as creating any relationship between Pepco and Generator other than that of independent contractors. 8.13 Conflicts. Except with respect to the amendments, indemnification, liability, default and remedies provisions contained herein or as otherwise expressly provided herein, in the event of any conflict or inconsistency between the terms of this Agreement and the terms of the Asset Sale Agreement, the terms of the Asset Sale Agreement shall prevail. IN WITNESS WHEREOF, Pepco and Generator have caused this Agreement to be signed by their respective duly authorized officers as of the date first above written. POTOMAC ELECTRIC POWER COMPANY By: ------------------------------------------- Name: ------------------------------------------- Title: ------------------------------------------- [GENERATOR] By: ------------------------------------------- Name: ------------------------------------------- Title: ------------------------------------------- 147 STATE OF ) ) SS: COUNTY OF ) BEFORE ME, a Notary Public in and for said County and State, personally appeared __________________________, an ________________________, by _____________________, its ________ who _________ is personally known to me/________ and who acknowledged before me that he did sign the foregoing instrument and that the same is the free act and deed of said ______________, and his free act and deed personally and as such officer. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at __________, __________, this ____ day of _________, ____. -------------------------------------------- Notary Public My Commission Expires: STATE OF ) ) SS: COUNTY OF ) BEFORE ME, a Notary Public in and for said County and State, personally appeared ___________________________, an ___________________, by ________________ its _____________________ who _______ is personally known to me/________ and who acknowledged before me that he did sign the foregoing instrument and that the same is the free act and deed of said corporation, and his free act and deed personally and as such officer. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at __________, __________, this ____ day of _________, ____. -------------------------------------------- Notary Public My Commission Expires: 148 Schedule 1.1 Definitions "Access" means, subject to the conditions set forth in this Agreement and a Party's right to impose reasonable security and safety restrictions protecting its officers, employees, agents, consultants, contractors, subcontractors, invitees, property and confidential information, full and unimpeded access, in common with Grantor over and through existing roads, paths, walkways, corridors, hallways, doorways, and other means of entry or exit, as exist now and from time to time on Grantor's property or, where no means of access exists, over and through those areas of Grantor's property or improvements which are (i) reasonably necessary or convenient for achieving Grantee's underlying purposes, and (ii) least likely, out of the alternatives reasonably available, to impede or damage the property or operation of any Party hereto. Access shall also include access and right-of-way for Grantee's employees, agents, consultants, contractors, subcontractors, vehicles, trucks, trailers, heavy machinery, equipment, materials, and all other items reasonably necessary or convenient for achieving Grantee's underlying purposes. "Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. "Agreement" means this Easement, License and Attachment Agreement. "Asset Sale Agreement" has the meaning set forth in the first recital of this Agreement, as such Asset Sale Agreement may be amended or modified. "Connection Agreement" means the Interconnection Agreement (Chalk Point), dated as of __________, 2000, between Pepco and Generator. "Distribution of Electric Current" means local transmission and distribution of electricity to Pepco's end users. "Distribution Facilities" means towers, lines of towers, poles, lines of poles, supporting structures, cables, crossarms, overhead and underground wires, guys, braces, ducts, conduits, cables, anchors, lightning protective wires, and all related above-ground and underground facilities, appurtenances and equipment, including all additions, replacements and expansions thereto, now or hereafter installed or located on the Generator's Real Property for Distribution of Electric Current. Distribution Facilities do not include Transmission Facilities. "Effective Date" has the meaning set forth in Section 8.l. "FERC" means the Federal Energy Regulatory Commission or its successors. 149 "Generating Facilities" means the Station and any additional generating plants, turbines or other generating facilities constructed by Generator after the Effective Date at the site of the Station. "Generator" shall have the meaning set forth in the introductory paragraph of this Agreement and shall include its permitted successors and assigns. "Generator's Real Property" means the real property described in Exhibit A, and any improvements or betterments thereto now or hereinafter situated thereon. "Good Utility Practice" shall have the meaning given it by the Connection Agreement. "Grantee" means the Party or Parties who enjoy the principal benefit of the referenced easement, license, right (including attachment rights) privilege or right-of-way. "Grantor" means the owner or owners of the property and/or improvement granting the referenced easement, license, right (including attachment rights), privilege or right-of-way. "Interconnection Service" shall have the meaning given it by the Connection Agreement. "Party" or "Parties" shall have the meaning set forth in the introductory paragraph of this Agreement. "Pepco" shall have the meaning set forth in the introductory paragraph of this Agreement and shall include its permitted successors and assigns. "Pepco Real Property" means the real property described in Exhibit B, and any improvements or betterments thereto now or hereinafter situated thereon. "Qualified Personnel" means individuals who possess any required licenses and trained for their positions and duties by Generator and/or Pepco pursuant to Good Utility Practice. "State" means the State of Maryland. "Station" means the Chalk Point Station as defined in the Asset Sale Agreement. "Transmission of Electric Current" means the transmission of such current typically over long distances and at voltages not commonly used for service to end use customers. "Transmission Facilities" means towers, lines of towers, poles, lines of poles, supporting structures, cables, crossarms, overhead and underground wires, guys, braces, ducts, conduits, cables, anchors, lightning protective wires, and all related above-ground and underground facilities, appurtenances and equipment, including all additions, replacements and expansions thereto, now or hereafter installed or located on the 150 Generator's Real Property and/or which Pepco may reasonably require now and from time to time on the Generator's Real Property for the Transmission of Electric Current. Transmission Facilities do not include Distribution Facilities. "Transmission System" shall have the meaning set forth in the Connection Agreement. "Use" means to operate, maintain, repair, upgrade, clean, install, add to, alter, remove, inspect, construct, modify, restore, rebuild, replace, relocate and expand (but if any such addition, relocation or expansion would unreasonably or materially burden Grantor's Property, in each case, the express, prior written consent of Grantor shall be required, which consent shall not unreasonably be withheld, delayed or conditioned) (all of the foregoing to be in accordance with Good Utility Practice). 151 LIST OF EXHIBITS Exhibit A Generator's Real Property Exhibit B Pepco Real Property Exhibit C Easement for Electrical Connections between Switchyard and Combustion Turbine-Generator Exhibit D Easement for Oil Pipeline on Pepco Real Property Exhibit E Easement for Oil Pipeline on Retained Assets 152 EXHIBIT C-4 AFTER RECORDING PARCEL ID# PLEASE RETURN TO: STREET ADDRESS: ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- EASEMENT, LICENSE AND ATTACHMENT AGREEMENT (Morgantown Station) THIS EASEMENT, LICENSE AND ATTACHMENT AGREEMENT (the "Agreement"), is dated as of ______________, 2000, and is entered into by and between ______________________________, a corporation organized and existing under the laws of the State of __________ and having an office at _____________________________________ ("Generator") and POTOMAC ELECTRIC POWER COMPANY, a District of Columbia and Virginia corporation and having an office at 1900 Pennsylvania Avenue, N.W., Washington, DC 20068 ("Pepco"). Generator and Pepco may hereinafter be referred to individually as a "Party" and collectively as the "Parties." RECITALS A. Generator and Pepco have entered into an Asset Purchase and Sale Agreement for Generating and Related Assets (the "Asset Sale Agreement"), dated June 7, 2000, for the sale of Pepco's generating station known as the Morgantown Station (as defined in the Asset Sale Agreement), which is located on that certain parcel of real property which has been conveyed by Pepco to Generator pursuant to the Asset Sale Agreement by virtue of a deed recorded immediately prior hereto and is more particularly described in Exhibit "A" attached hereto (the "Generator's Real Property"). B. Pepco intends to continue to operate its transmission and distribution business on and from that certain parcel of real property adjoining the Generator's Real Property, which parcel has been retained by Pepco following the conveyances contemplated by the Asset Sale Agreement, and is more particularly described in Exhibit "B" attached hereto (the "Pepco Real Property"). C. Pepco will continue to own and operate certain assets used in the conduct of its transmission and distribution business which are located upon the Generator's Real Property, and Pepco requires Access (as defined below) to, and certain other rights with respect to, the Generator's Real Property in connection therewith. Generator, in the operation and conduct of its generation business, will require Access to, and certain other rights with respect to, the Pepco Real Property. Furthermore, Pepco and Generator have entered into an Interconnection Agreement (the "Connection Agreement"), dated as of __________, 2000, pursuant to which Pepco has agreed to provide certain Interconnection Service to Generator required for Generator's conduct of its generation business at Morgantown Station. 153 D. In order for the Parties each to (i) enjoy the full benefit of their respective property rights, real or personal, and conduct their respective businesses thereat (ii) fulfill legal requirements, and (iii) comply with their respective agreements under the Connection Agreement, each Party requires certain easements, licenses, rights-of-way and/or attachment rights in, on, over and above, or with respect to, real and or personal property of the other Party. AGREEMENT NOW, THEREFORE, the Parties, in consideration of the mutual covenants and agreements contained herein and in the Asset Sale Agreement and the Connection Agreement, and for One Dollar ($1.00) and other good and valuable consideration, the receipt whereof and sufficiency of which are hereby acknowledged, each intending to be legally bound and to bind their respective successors and assigns, hereby mutually agree as follows: 1. DEFINITIONS 1.1 Definitions. Any capitalized terms which are used but not defined in the body of this Agreement shall have the meanings given to such terms in the attached Schedule 1.1. 2. EASEMENTS 2.1 Grant of Easements to Pepco. Generator does hereby give, grant, bargain, sell, assign and convey unto Pepco, the following easements on the Generator's Real Property for the following purposes: (a) A ten (10) foot wide easement, as more particularly described in Exhibit "C" attached hereto, for the connection and extension of overhead and underground utility facilities and other equipment and facilities utilized in connection with the transmission and distribution business of Pepco (as now or hereafter conducted) and other functions as Pepco may determine from time to time. (b) An easement for the Use, operation and maintenance of the Retained Assets (as described in the Asset Sale Agreement) located upon the Generator's Real Property and any other equipment of any nature or kind retained by Pepco and located upon the Generator's Real Property, together with any other equipment used in connection with the foregoing (together with replacements thereof and substitutions therefor). (c) An easement which enables Pepco to keep and maintain in their present locations, and operate, any Transmission Facilities, Distribution Facilities and other assets owned by Pepco and located upon the Generator's Real Property, together with an easement for all purposes reasonably deemed necessary or convenient by Pepco to 154 exercise any right or fulfill any obligation under the Connection Agreement, including the right to Use any improvements constructed, maintained or installed in connection therewith. (d) An easement of Access to those certain generating buildings (and any replacements thereof) located upon the Generator's Real Property in and upon which certain of Pepco's Distribution Facilities and Transmission Facilities are located. Such easement shall include, without limitation, the right to have keys, access codes or other access methods necessary to enter any of such generating buildings. Furthermore, the exercise of the easement right set forth in this subparagraph shall be subject to the provisions of the Connection Agreement including, without limitation, Section 3.3 thereof. (e) An easement of Access to the Generator's Real Property for the purposes of exercising any of the rights granted in this Section 2.l, in Section 2.3(b)(viii) hereof, in the Connection Agreement or the Asset Sale Agreement. (f) An easement of Access to, and the right to use, the parking lots, access roads, driveways and other such facilities located upon the Generator's Real Property. (g) Pepco's exercise of the rights, easements, privileges and licenses granted to it pursuant to this Section 2.1 shall be limited to Qualified Personnel or employees of contractors employed by Pepco who, in either event, are under Pepco's and/or its contractors' direct supervision and whose duties include, or who are engaged for the purpose of, Use of the rights granted pursuant to this Section 2.1. (h) The easements granted pursuant to this Section 2.1 shall expressly include Pepco's right to lease, license or otherwise permit Affiliates or third parties to use Pepco's facilities upon such terms and for such purposes as Pepco may determine from time to time, subject to the terms and conditions of this Agreement. 2.2 Reservation by Generator of Certain Rights. Generator reserves to itself, from the easements granted pursuant to Section 2.1 hereof, the following rights, subject, however, to the provisions of the final paragraph of this Section 2.2: (a) the right to (i) keep and maintain Generator's Real Property and all improvements and facilities owned by Generator and located upon the Generator's Real Property in their present locations, and (ii) operate and maintain all improvements and facilities owned by Generator and located upon the Generator's Real Property in a manner consistent with past practice; and (b) the right to have Access to all portions of the Generator's Real Property for all purposes deemed reasonably necessary or convenient by Generator in the operation and conduct of its generation business or in order to perform any act permitted, or fulfill any obligation of Generator, under the Connection Agreement, 155 including maintenance of the Generator's Real Property in the manner described in the Connection Agreement. (c) Generator's exercise of the rights reserved to Generator in this Section 2.2, and the rights, privileges and licenses granted to Generator in Section 2.3 shall be exclusively limited to Qualified Personnel or employees of contractors employed by Generator who, in either event, are under Generator's and/or its contractors' direct supervision and whose duties include, or who are engaged for the purpose of, Use of the property described in clause (a) of this Section. 2.3 Grant of Easements, Right, Privilege and License from Pepco to Generator. (a) Pepco does hereby grant to Generator the following easements, rights, privileges and licenses on and with respect to the Pepco Real Property: (i) An easement, as described on Exhibit "D" attached hereto, for the operation and maintenance of an existing oil pipeline (to be used solely for the transmission of oil) on, under and across Pepco Real Property at two (2) locations. (ii) An easement, as described on Exhibit "E" attached hereto, for the operation and maintenance of an existing oil pipeline (to be used solely for the transmission of oil) on, under and across the Retained Assets. (iii) An easement which enables Generator to keep and maintain in their present locations, and operate, any Generating Facilities and other assets owned by Generator and located upon the Pepco Real Property. (iv) An easement of Access to and upon the Pepco Real Property for the purposes of exercising any of the rights granted in the Connection Agreement or the Asset Sale Agreement. (b) In addition, but without limitation of Generator's rights pursuant to the Connection Agreement, Pepco agrees to make available to Generator (at no cost to Generator, except as provided below) Pepco's master station voltage control equipment (the "Equipment") located at Morgantown Station upon the Generator's Real Property during the term of this Agreement, subject to the following terms and conditions, and Generator agrees to comply with such terms and conditions: (i) Generator's operation of the Equipment shall at all times be subject to that certain Agreement of Sale and Lease dated as of November 30, 1994 between NationsBank Trust Company, National Association and Pepco (the "Control Center Lease"), and Generator shall comply with the terms and conditions 156 thereof with respect to the use of the Equipment (including keeping the Equipment free and clear of any liens, claims or encumbrances of whatever nature, and identifying the Equipment as being owned by Pepco, and shall not modify, alter, remove or add to the Equipment); (ii) Generator shall operate and maintain the Equipment in accordance with Good Utility Practice; (iii) Generator shall be responsible for all operating, repair and maintenance costs, taxes and the like with respect to the Equipment, and shall reimburse Pepco promptly upon invoicing for any such costs paid by Pepco; (iv) Generator's Access to the Equipment shall be in accordance with this Agreement; (v) Generator's right to operate the Equipment shall terminate in the event of actual or constructive loss of the Equipment, damage rendering the Equipment beyond repair or unfit for normal use, the condemnation or seizure of the Equipment, the obsolescence of the Equipment or the material breach by Generator of any of its covenants in this Section 2.3(b); (vi) Pepco shall have no obligation to Generator with respect to the Equipment other than to permit Access to and operation of the Equipment in accordance with this Section 2.3(b); (vii) The obligations of Generator under Section 7.4 (maintenance of liability insurance coverage) and Section 7.1 (indemnification) shall be applicable to the Equipment; and (viii) Pepco shall have Access to the Equipment for purposes of complying with the terms and conditions of the Control Center Lease and as necessary to perform any of the obligations of Generator pursuant to this subparagraph (b) above to the extent the same are not timely performed by Generator. 2.4 General Scope of Easements. (a) Except as otherwise provided in Sections 2.2 and 2.3 above and Section 2.4(b) below, each easement and each right, privilege and license granted hereby is and shall be a perpetual grant, transfer, conveyance and right of Access to and Use 157 (subject to the terms of this Agreement) to the Grantee thereof and to any future owner of the real property, improvements and facilities benefited thereby. Notwithstanding the foregoing, all easements, rights, privileges and licenses granted by this Agreement are and shall be subject to the terms and conditions of the Connection Agreement, and in the event of any inconsistency between the terms and conditions of the Connection Agreement and the terms of this Agreement, the terms of the Connection Agreement shall control. (b) Any easement or right, privilege and license granted hereunder for purposes of enabling a Party to exercise any right or fulfill any obligation set forth in the Connection Agreement will continue for the term of the Connection Agreement, and thereafter if and to the extent that the right or obligation (i) shall by its express terms survive the termination or expiration of the Connection Agreement or (ii) is necessary for the conduct of business by Grantee. In the event of the termination or expiration of an easement or right, privilege and license granted hereunder for purposes of enabling a Grantee to exercise any right or fulfill any obligation set forth in the Connection Agreement, all equipment and facilities installed or maintained by such Grantee on the real property of the other Party pursuant to said terminated or expired easement or right, privilege and license shall, at the request of the other Party, be removed at the sole cost and expense of such Grantee, and such Grantee shall, at its sole cost and expense repair any damage to the real property and/or equipment and facilities of the other Party damaged as a result of such removal. (c) All equipment and facilities installed or maintained by Grantee pursuant to an easement or right, privilege and license granted hereunder shall be maintained by Grantee in accordance with Good Utility Practice and the Connection Agreement, and Grantee shall make all repairs and replacements necessary to keep such equipment and facilities in such condition. (d) Generator may not Use any portion of Generator's Real Property burdened by any easement, right or privilege granted to Pepco hereunder if such Use would materially adversely affect the Use and enjoyment by Pepco of the rights granted to it hereunder, or materially increase the costs or risks associated with such Use. (e) All easements granted herein shall be deemed easements appurtenant to the parcel of real property benefited thereby and shall run with such real property and shall be deemed covenants running with the real property burdened thereby. 2.5 Interpretation. The following shall apply in interpreting any easement and any right, privilege and license granted pursuant to this Agreement: (a) Each easement and each right, privilege and license granted herein is irrevocable except by written agreement of the parties. 158 (b) With respect to any easement created by this Agreement, the words "in," "upon," "to," "on," "over," "above," "through" and/or "under" shall be interpreted to include all of such terms. (c) Each easement and each right, privilege and license granted herein may be enjoyed without charge or fee to Grantee of the easement. (d) Each easement and each right, privilege and license granted herein is also a grant of the additional right of Access over Grantor's property to accomplish the purpose of such easement or right, privilege and license, to perform any obligations hereunder or in the Connection Agreement, and to comply with any legal requirements affecting Grantee or its property and/or improvements. (e) Exercise of any easement or any right, privilege and license granted hereunder permitting or requiring maintenance, repairs, alteration, restoration, rebuilding, construction, upgrading, cleaning, installation, removal, modification, replacement, expansion, or other work by Grantee upon the property or improvements of Grantor shall be subject to the following conditions: (i) Work upon the facilities and properties of either Party subject to this Agreement shall be permitted only to each Party's Qualified Personnel, and Access to such facilities and properties shall be permitted only to a Party's Qualified Personnel and such consultants, agents, contractors, subcontractors and invitees as any Party may select or permit; provided that any consultant, agent, contractor, subcontractor or invitee shall comply with all applicable provisions of this Agreement and the Connection Agreement. (ii) Work shall be performed using reasonable precautions to avoid unreasonable interference with the Use and enjoyment of Grantor's property and improvements. (iii) Except only as may be specifically provided to the contrary herein, Grantee shall not be liable for damage, if any, which may be caused by Grantee's normal and reasonable Use of any easement, or right, privilege or license granted hereunder. (iv) Following completion of the work, Grantee shall restore Grantor's property and improvements to the same or as good a condition as existed before the commencement of the work. (v) Any easement and any right, privilege and license granted herein which permits a Gramtee to maintain its property, 159 equipment, facilities and appurtenances on the property and improvements owned by Grantor also includes the right to maintain in place on Grantor's property and improvements any and all wires and cables connecting such property, equipment, facilities, and appurtenances to (i) the devices, machinery and equipment which they measure, regulate and/or control, and (ii) power sources. (vi) Generator shall be solely responsible for the maintenance of any roads, paths and other means of entry or exit exit located upon either the Generator's Real Property or the Pepco Real Property that are commonly utilized by Generator and Pepco, and their respective employees, agents and contractors pursuant to this Agreement or the Connection Agreement. (f) Any easement granted pursuant to Section 2.1(a), (b) or (c) includes the right to (i) trim, cut, treat and/or remove, by manual, mechanical, and chemical means, any and all trees, brush, structures and other obstructions within the easement area, as well as such trees, brush, structures and vegetation outside of the easement area deemed reasonably necessary or desirable by Pepco for the safe and secure operation of its facilities; and (ii) obtain Access to Generator's Real Property for the purpose of performing the aforementioned acts. 2.6 Rules and Regulations. Each Party may promulgate rules regulating the conduct of the other Party in the exercise of rights under this Agreement provided such rules and regulations do not unreasonably interfere with or impede the affected Party's rights and easements as set forth herein or in the Connection Agreement. 2.7 No Obstruction. (a) No Party hereto shall obstruct the easements or the rights, privileges and licenses granted or created pursuant to this Agreement or render them impassable or unusable in any way or otherwise in any way interfere with the right to the Use and enjoyment of the easements or rights, privileges and licenses granted or created pursuant to this Agreement. (b) No Party hereto shall make any changes to the topography or accesses on or to its respective property, including grading or drainage that could reasonably be expected to adversely affect another Party's facilities, common use drainage systems, or pollution control systems, or the exercise of any right or fulfillment of any obligation in this Agreement or in the Connection Agreement, without the prior written consent of the other Party which consent shall not unreasonably be withheld, delayed or conditioned. 160 3. TAXES, ASSESSMENTS AND OTHER CHARGES 3.1 Real Estate Taxes. Generator, with respect to the Generator's Real Property and Pepco, with respect to the Pepco Real Property, shall pay and discharge all of the following ("Real Estate Taxes") whether or not now within the contemplation of the Parties hereto: (i) all real estate taxes, assessments (both general and special), other governmental impositions and charges, taxes, rents, levies and sums of every kind or nature whatsoever, extraordinary as well as ordinary, as shall at any time be imposed by any governmental or public authority on, or become a lien in respect of, the Generator's Real Property or the Pepco Real Property, as the case may be, or any part thereof, or which may become due and payable with respect thereto, and any and all taxes assessments and charges levied, assessed or imposed upon the Generator's Real Property or the Pepco Real Property, as the case may be, in lieu of or in addition to, the foregoing, under or by virtue of any present or future laws, rules, requirements, orders, directives, ordinances or regulations of the United States of America or of the State or of any subdivision thereof, or of any lawful governmental authority whatsoever, and any interest or penalties thereon, and (ii) all other taxes (excluding gains, sales and income taxes but including occupancy taxes which are measured by income) measured by ownership of the Generator's Real Property or the Pepco Real Property, as the case may be. Generator shall pay and discharge all levies and assessments for water, water meter (including any expenses incident to the installation, repair or replacement of any water meter) and sewer and all rents with respect to water and sewer which provide service to the Generator's Real Property. 3.2 Personal Property Taxes. Generator and Pepco shall, respectively, pay and discharge all of the following ("Personal Property Taxes") whether or not now within the contemplation of the Parties hereto: all taxes and assessments which shall or may be charged, levied, assessed or imposed upon, or become a lien upon, the personal property of Generator or Pepco, as the case may be, Used in the operation or in connection with the business conducted at the Generator's Real Property or the Pepco Real Property, as the case may be. 3.3 Timing of Payment. Subject to the provisions of Section 3.5, Generator and Pepco shall each comply with its covenant to pay and discharge all Real Estate Taxes and Personal Property Taxes by paying all such taxes directly to the appropriate taxing authorities prior to the expiration of the period within which payment is permitted without penalty or interest. Generator and Pepco shall within twenty (20) days of written request of the other Party, produce the most recent official receipts from the appropriate taxing authorities evidencing such payment certified by Generator or Pepco, as the case may be, to the other Party hereto. 3.4 Cooperation with Respect to Tax Statements. Generator and Pepco will cooperate with each other in obtaining and/or retaining any tax abatement for which the Generator's Real Property or Pepco Real Property may be eligible. Upon written request of the Party seeking an abatement, the other Party or Parties hereto will 161 execute and file any and all documents and instruments reasonably necessary to obtain and retain such abatement, without the assumption of any liabilities or obligations, provided that the Party seeking such abatement shall reimburse the cooperating Party or Parties for any reasonable expenses that such cooperating Party or Parties may incur in connection therewith. 3.5 Tax Contests. Generator, with respect to the Generator's Real Property, and Pepco, with respect to the Pepco Real Property: (a) May contest in good faith by appropriate proceedings diligently and continuously conducted, at its or their sole cost and expense, any Real Estate Tax or charge or Personal Property Tax or charge, or similar tax or charge and, where permitted by law, pay the same under protest. (b) Shall pay and discharge such contested items as finally adjudicated or settled, with interest and penalties, and all other charges directed to be paid in or by any such adjudication or settlement. (c) May, in its or their sole discretion, consolidate any proceeding to obtain a reduction in the assessed valuation with any similar proceeding or proceedings brought by it or them relating to any one or more other tax years. (d) Shall indemnify and hold the non-contesting Party harmless from and against all liability, loss, cost or expense arising out of the contest. 3.6 Refunds. Any refunds from any contest undertaken pursuant to Section 3.5 shall belong wholly to the Party or Parties that paid the tax. 4. MECHANICS' LIENS 4.1 Notice Regarding Labor and Material. Notice is hereby given that no Party hereto shall be liable for any labor or materials furnished or to be furnished to or for another Party hereto or to any other persons or entities claiming under such other Party on credit, and that no mechanics' or other lien for any such labor or material furnished to a Party or such other persons or entities shall attach to or affect any property interest of any other Party. 4.2 Disposition of Liens. (a) Pepco shall forthwith take such action necessary to discharge, remove or satisfy any lien filed against the Generator's Real Property or any portion thereof for any labor or materials furnished or to be furnished for or on behalf of Pepco, or any person or entity holding any portion thereof through or under Pepco. 162 (b) Generator shall forthwith take such action necessary to discharge, remove or satisfy any lien filed against the Pepco Real Property or any portion thereof for any labor or materials furnished or to be furnished for or on behalf of Generator, or any person or entity holding any portion thereof through or under Generator. (c) If either Pepco or Generator, as the case may be, shall fail to discharge, remove or satisfy any such lien which it is obligated to discharge, remove or satisfy hereunder within ten (10) days after notice of the existence of the lien has been given to such defaulting Party, the non-defaulting Party or parties may pay the amount of such lien or discharge the same by deposit or bonding, and the amount so paid or deposited, or the premium paid for such bond, with interest at the rate provided for defaults in Section 6.3 hereof, shall be paid by the defaulting Party upon demand to the non-defaulting Party who effected such cure. (d) The defaulting Party shall defend, indemnify and save harmless the non-defaulting Party from and against all liability, loss, cost or expense (including reasonable attorneys' fees) arising out of any liens which the defaulting Party is obligated to discharge, remove or satisfy. 5. CONDEMNATION 5.1 Right to Participate. In the event the Generator's Real Property or the Pepco Real Property, or any part thereof, shall be taken in condemnation proceedings or by exercise of any right of eminent domain or any agreement with those authorized to exercise such right (any such matter being hereinafter referred to as a "Taking" or property "Taken"), whether such Taking be a permanent Taking or a temporary Taking, any person or entity having an interest in the award or awards shall have the right to participate in any such condemnation proceedings or agreement for the purpose of protecting its interest hereunder. Each Party so participating shall pay its own expenses. 5.2 Total Taking. A "Total Taking" shall be deemed to have occurred as to the property of any Party (which means the Generator's Real Property, as to Generator, and the Pepco Real Property, as to Pepco) when the entire property of such Party shall be Taken or a substantial part of such property shall be Taken and the untaken portion of the property would, following the completion of restoration, be unsuitable for the operation and the Use thereof in the manner so operated and Used prior to the Taking. Upon a Total Taking, this Agreement shall terminate with respect to the property Taken except with respect to the disposition of the award and this Agreement shall continue with respect to the property not Taken. 5.3 Disposition of Award. In the event of a Taking, each Party shall be entitled to share in the awards to the extent of its interest in the property subject to the 163 Taking, and for consequential damages to and dilution of value of the relevant property not so Taken. 5.4 Notice of Taking. In the event the Generator's Real Property or the Pepco Real Property, or any part thereof, shall be the subject of any condemnation proceedings or the subject of any eminent domain proceedings, and if any Party shall receive actual notice of such proceedings, the Party receiving such notice shall notify the other Party of the existence of such proceedings. Such notification shall occur within thirty (30) days of the receipt of such actual notice. 6. DEFAULTS 6.1 Events of Default. Each and every one of the following events shall constitute an Event of Default ("Event of Default") under this Agreement: (a) If a Party fails to make any payment due to the other Party hereto within twenty (20) days of written demand for such payment; (b) If a Party fails, within twenty (20) days of written notice from a Party, to make any payment due from such Party to any third party and such failure could result in the imposition of a lien or other encumbrance on the property or improvements of a Party, unless the payment of such amount is contested in accordance with Section 3.5 hereof, in which case, the provisions of Section 3.5 shall control; and (c) If a Party fails to perform any material non-monetary obligations hereunder, and said Party fails to cure such default within thirty (30) days of receipt of written notice stating with particularity the nature of the default; provided, however, if such default is of such a nature that it cannot be cured within thirty (30) days following receipt of such notice, an Event of Default shall not have occurred if the defaulting Party shall within such thirty (30) days commence the necessary cure and shall at all times thereafter diligently and continuously prosecute such cure to completion. 6.2 Right of Self Help. A non-defaulting Party may at its election following the occurrence of a non-monetary Event of Default and the thirtieth (30th) day after the receipt of the written notice specified in paragraph 6.1(c) hereof, undertake the cure of such default on behalf of the defaulting Party. A non-defaulting Party is granted an easement to enter upon, through or under the property or improvements of the defaulting Party to effect such cure. Following the occurrence of an Event of Default involving the payment of money to a person or entity not Party to this Agreement, a non-defaulting Party may make such payment on behalf of the defaulting Party. All monies paid by the non-defaulting Party and all reasonable costs and expenses (including, reasonable attorneys' fees) incurred by it, as the case may be, in effecting such cure or payment, shall be paid by the defaulting Party upon written demand, together with interest from the date of such 164 demand at the rate set forth in Section 6.3. This Section 6.2 shall not limit Pepco's self-help rights pursuant to Section 2.3(b). 6.3 Interest. Following the occurrence of an Event of Default involving the nonpayment of money by the defaulting Party to the non-defaulting Party, all monies owed to the non-defaulting party shall bear interest at the rate equal to one and one-half percent (1.5%) per month accruing on the due date, provided, however, that such late payment charge shall not exceed the maximum charge which may be collected under State law. 6.4 Enforcement Rights. In addition to any other rights expressly set forth in this Agreement, but without limitation, enforcement of this Agreement may be had by legal or equitable proceedings against any defaulting Party either to specifically enforce, restrain or enjoin the violation of any restriction, covenant, agreement, term, representation or warranty herein contained or to recover damages. The above notwithstanding, termination of this Agreement shall not be available as a remedy in any proceedings against any defaulting Party. 6.5 No Forfeiture. Except by enforcement of a judgment lien against such property, nothing contained in this Agreement shall create any reversion, condition or right of re-entry or other provisions for forfeiture under which any Party can be cut off, subordinated or otherwise disturbed in the possession of its property. 6.6 Independent Covenants. None of the rights and easement granted by this Agreement and none of the performances required by this Agreement shall be dependent, upon the performance of any other term, promise, or condition of this Agreement or any documents executed concurrently or in connection with this Agreement, and such rights, easement and requirements or performance shall continue in effect irrespective of whether anything else in this Agreement or such other documents has been breached or has been terminated. The separateness and independent survival of the right, easements and requirements of performance under this Agreement are essential terms hereof without which this Agreement would not have been made. 7. INDEMNIFICATION AND INSURANCE 7.1 Generator's Indemnification. Generator shall indemnify, hold harmless, and defend Pepco and its Affiliates, as the case may be, and their respective officers, directors, employees, agents, contractors, subcontractors, invitees, successors and permitted assigns from and against any and all claims, liabilities, costs, damages, and expenses (including, without limitation, reasonable attorney and expert fees, and disbursements incurred by any of them in any action or proceeding between Pepco and a third party or Generator) for damage to property of unaffiliated third parties, injury to or death of any person, including Pepco's employees or any third parties, to the extent caused, by the breach of this Agreement by Generator or the negligence or willful misconduct of 165 Generator and/or its officers, directors, employees, agents, contractors, subcontractors or invitees arising out of or connected with Generator's performance of this Agreement, or the exercise by Generator of its rights hereunder. 7.2 Pepco's Indemnification. Pepco shall indemnify, hold harmless, and defend Generator and its Affiliates, as the case may be, and their respective officers, directors, employees, agents, contractors, subcontractors, invitees, successors and permitted assigns from and against any and all claims, liabilities, costs, damages, and expenses (including, without limitation, reasonable attorney and expert fees, and disbursements incurred by any of them in any action or proceeding between Generator and a third party or Pepco) for damage to property of unaffiliated third parties, injury to or death of any person, including Generator's employees or any third parties, to the extent caused by the breach of this Agreement by Pepco or the negligence or willful misconduct of Pepco and/or its officers, directors, employees, agents, contractors, subcontractors or invitees arising out of or connected with Pepco's performance of this Agreement, or the exercise by Pepco of its rights hereunder. 7.3 Survival. The provisions of Sections 7.1 and 7.2 shall survive termination, cancellation, suspension, completion or expiration of this Agreement. 7.4 Insurance Coverage. The Parties shall maintain at their own cost the following insurance: (a) standard Commercial General Liability insurance with limitations not less than One Hundred Million Dollars ($100,000,000.00)in the aggregate; (b) All-Risk Property insurance in amounts not less than one hundred percent (100%) of the full replacement cost of the improvements located upon each Party's real property; (c) Worker's compensation insurance as required by prevailing law and Employer's liability insurance with limits of not less than Twenty-five Million Dollars ($25,000,000.00); and (d) such other insurance as is customary in the electric utility industry. 7.5 Certificate of Insurance. The Parties agree to furnish each other with certificates of insurance evidencing the insurance coverage obtained in accordance with this Article 7, and the Parties agree to notify and send copies to the other of any policies maintained hereunder upon written request by a Party. Each Party must notify the other Party within five (5) business days of receiving notice of cancellation, change, amendment or renewal of any insurance policy required pursuant to Section 7.4 above. 7.6 Additional Insureds and Waiver. Each Party and its affiliates shall be named as additional insureds on the general liability insurance policies obtained in accordance with Section 7.4, above, as regards liability under this Agreement; and each general liability insurance policy shall contain a waiver of subrogation and each Party shall waive its rights of recovery against the other for any loss or damage covered by such policy. 166 8. MISCELLANEOUS 8.1 Effective Date. This Agreement will be effective on the Closing Date pursuant to the Asset Sale Agreement (the "Effective Date"). 8.2 Exhibits. All exhibits attached to this Agreement are part of this Agreement and the material contained in such exhibits shall be construed and interpreted as if contained within the text of the Agreement. 8.3 Headings. The Article and Section headings of this Agreement are for convenience and reference only and in no way define, limit or describe the scope and intent of this Agreement, nor in any way affect this Agreement. 8.4 Interpretation. When a reference is made in this Agreement to an Article, Section, Schedule or Exhibit, such reference shall be to an Article or Section of, or Schedule or Exhibit to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation" or equivalent words. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any agreement, instrument, statute, regulation, rule or order defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument, statute, regulation, rule or order as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes, regulations, rules or orders) by succession of comparable successor statutes, regulations, rules or orders and references to all attachments thereto and instruments incorporated therein. References to a person are also to its permitted successors and assigns. Each Party acknowledges that it has been represented by counsel in connection with the review and execution of this Agreement and, accordingly, there shall be no presumption that this Agreement or any provision hereof be construed against the Party that drafted this Agreement. 8.5 GOVERNING LAW. EXCEPT WITH RESPECT TO THE CREATION, PERFECTION AND ENFORCEMENT OF THE REAL PROPERTY INTERESTS CREATED HEREUNDER, WHICH SHALL BE GOVERNED AND CONSTRUED BY THE LAWS OF THE STATE, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE DISTRICT OF COLUMBIA EXCLUSIVE OF ITS CHOICE OF LAW RULES. 167 8.6 Entire Agreement. This Agreement, the Asset Sale Agreement, the Confidentiality Agreement (as defined in the Asset Sale Agreement) and the Ancillary Agreements (as defined in the Asset Sale Agreement) including the Exhibits, Schedules, documents, certificates and instruments referred to herein or therein and other contracts, agreements and instruments contemplated hereby or thereby, embody the entire agreement and understanding of the Parties in respect of the transactions contemplated by this Agreement. There are no restrictions, promises, representations, warranties, covenants or undertakings other than those expressly set forth or referred to herein or therein. 8.7 Amendment and Modification, Extension, Waiver. This Agreement may be amended, modified or supplemented only by an instrument in writing signed on behalf of each of the Parties. Either Party may (i) extend the time for the performance of any of the obligations or other acts of the other Party, (ii) waive any inaccuracies in the representations and warranties of the other Party contained in this Agreement or (iii) waive compliance by the other Party with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a Party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such Party. The failure of a Party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. 8.8 Binding Effect. The covenants, conditions, restrictions, encumbrances, easements, license and agreements set forth in this Agreement shall attach to, burden, and run with the land and the Generator's Real Property and the Pepco Real Property or the applicable portion or portions thereof, and shall be appurtenant to the Generator's Property or the Pepco Real Property, as appropriate and, together with the remainder of this Agreement, shall be binding upon the Parties hereto and their respective successors, assigns, grantees, transferees and tenants and, together with the remainder of this Agreement, shall inure to the benefit and Use of the Parties hereto and their respective heirs, successors, assigns, grantees, transferees and tenants. Each Grantee of any portion of or interest in the property and each mortgagee which succeeds to the fee simple ownership of any portion of the property shall be deemed, by the acceptance of the deed conveying fee simple title to such person, to have agreed to perform each and every undertaking created hereunder attributable to the portion of the property in which such Grantee or mortgagee has acquired an interest. 8.9 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 8.10 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this 168 Agreement so as to effect the original intent of the Parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. 8.11 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given (as of the time of delivery or, in the case of a telecopied communication, of confirmation) if delivered personally, telecopied (which is confirmed) or sent by overnight courier (providing proof of delivery) to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice): if to Pepco, to: Potomac Electric Power Company 1900 Pennsylvania Avenue, N.W. Washington, D.C. 20068 Telecopier: (202) 261-7889 Attention: William T. Torgerson, General Counsel with a copy to: Dickstein Shapiro Morin & Oshinsky LLP 2101 L Street, N.W. Washington, D.C. 20037 Telecopy No.: 202) 887-0689 Attention: Kenneth M. Simon, Esq. if to Generator, to: Southern Energy, Inc. 900 Ashwood Parkway Suite 500 Atlanta, Georgia 30338-4780 Telecopier: (770) 821-6575 Attention: with a copy to: Troutman Sanders LLP 1300 I Street, N.W. Suite 500 East Washington, DC 20005 Telecopier: (202) 274-2994 Attention: Benjamin L. Israel, Esq. 169 The names, titles and addresses of either Party in this section may be changed by written notification to the other Party. 8.12 Independent Contractor Status. Nothing in this Agreement shall be construed as creating any relationship between Pepco and Generator other than that of independent contractors. 8.13 Conflicts. Except with respect to the amendments, indemnification, liability, default and remedies provisions contained herein or as otherwise expressly provided herein, in the event of any conflict or inconsistency between the terms of this Agreement and the terms of the Asset Sale Agreement, the terms of the Asset Sale Agreement shall prevail. IN WITNESS WHEREOF, Pepco and Generator have caused this Agreement to be signed by their respective duly authorized officers as of the date first above written. POTOMAC ELECTRIC POWER COMPANY By: ------------------------------ Name: ------------------------------ Title: ------------------------------ [GENERATOR] By: ------------------------------ Name: ------------------------------ Title: ------------------------------ 170 STATE OF ) ) SS: COUNTY OF ) BEFORE ME, a Notary Public in and for said County and State, personally appeared __________________________, an ________________________, by _____________________, its ________ who _________ is personally known to me/ ________ and who acknowledged before me that he did sign the foregoing instrument and that the same is the free act and deed of said _________________, and his free act and deed personally and as such officer. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at __________, __________, this ____ day of _________, ____. ------------------------------- Notary Public My Commission Expires: STATE OF ) ) SS: COUNTY OF ) BEFORE ME, a Notary Public in and for said County and State, personally appeared ________________________, an ___________________, by ________________ its _____________________ who _______ is personally known to me/ ________ and who acknowledged before me that he did sign the foregoing instrument and that the same is the free act and deed of said corporation, and his free act and deed personally and as such officer. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at __________, __________, this ____ day of _________, ____. --------------------------------- Notary Public My Commission Expires: 171 Schedule 1.1 Definitions "Access" means, subject to the conditions set forth in this Agreement and a Party's right to impose reasonable security and safety restrictions protecting its officers, employees, agents, consultants, contractors, subcontractors, invitees, property and confidential information, full and unimpeded access, in common with Grantor over and through existing roads, paths, walkways, corridors, hallways, doorways, and other means of entry or exit, as exist now and from time to time on Grantor's property or, where no means of access exists, over and through those areas of Grantor's property or improvements which are (i) reasonably necessary or convenient for achieving Grantee's underlying purposes, and (ii) least likely, out of the alternatives reasonably available, to impede or damage the property or operation of any Party hereto. Access shall also include access and right-of-way for Grantee's employees, agents, consultants, contractors, subcontractors, vehicles, trucks, trailers, heavy machinery, equipment, materials, and all other items reasonably necessary or convenient for achieving Grantee's underlying purposes. "Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. "Agreement" means this Easement, License and Attachment Agreement. "Asset Sale Agreement" has the meaning set forth in the first recital of this Agreement, as such Asset Sale Agreement may be amended or modified. "Connection Agreement" means the Interconnection Agreement (Morgantown), dated as of __________, 2000, between Pepco and Generator. "Distribution of Electric Current" means local transmission and distribution of electricity to Pepco's end users. "Distribution Facilities" means towers, lines of towers, poles, lines of poles, supporting structures, cables, crossarms, overhead and underground wires, guys, braces, ducts, conduits, cables, anchors, lightning protective wires, and all related above-ground and underground facilities, appurtenances and equipment, including all additions, replacements and expansions thereto, now or hereafter installed or located on the Generator's Real Property for Distribution of Electric Current. Distribution Facilities do not include Transmission Facilities. "Effective Date" has the meaning set forth in Section 8.l. "FERC" means the Federal Energy Regulatory Commission or its successors. 172 "Generating Facilities" means the Station and any additional generating plants, turbines or other generating facilities constructed by Generator after the Effective Date at the site of the Station. "Generator" shall have the meaning set forth in the introductory paragraph of this Agreement and shall include its permitted successors and assigns. "Generator's Real Property" means the real property described in Exhibit A, and any improvements or betterments thereto now or hereinafter situated thereon. "Good Utility Practice" shall have the meaning given it by the Connection Agreement. "Grantee" means the Party or Parties who enjoy the principal benefit of the referenced easement, license, right (including attachment rights) privilege or right-of-way. "Grantor" means the owner or owners of the property and/or improvement granting the referenced easement, license, right (including attachment rights), privilege or right-of-way. "Interconnection Service" shall have the meaning given it by the Connection Agreement. "Party" or "Parties" shall have the meaning set forth in the introductory paragraph of this Agreement. "Pepco" shall have the meaning set forth in the introductory paragraph of this Agreement and shall include its permitted successors and assigns. "Pepco Real Property" means the real property described in Exhibit B, and any improvements or betterments thereto now or hereinafter situated thereon. "Qualified Personnel" means individuals who possess any required licenses and training for their positions and duties by Generator and/or Pepco pursuant to Good Utility Practice. "State" means the State of Maryland. "Station" means the Morgantown Station as defined in the Asset Sale Agreement. "Transmission of Electric Current" means the transmission of such current typically over long distances and at voltages not commonly used for service to end use customers. "Transmission Facilities" means towers, lines of towers, poles, lines of poles, supporting structures, cables, crossarms, overhead and underground wires, guys, braces, ducts, conduits, cables, anchors, lightning protective wires, and all related above-ground and underground facilities, appurtenances and equipment, including all additions, 173 replacements and expansions thereto, now or hereafter installed or located on the Generator's Real Property and/or which Pepco may reasonably require now and from time to time on the Generator's Real Property for the Transmission of Electric Current. Transmission Facilities do not include Distribution Facilities. "Transmission System" shall have the meaning set forth in the Connection Agreement. "Use" means to operate, maintain, repair, upgrade, clean, install, add to, alter, remove, inspect, construct, modify, restore, rebuild, replace, relocate and expand (but if any such addition, relocation or expansion would unreasonably or materially burden Grantor's Property, in each case, the express, prior written consent of Grantor shall be required, which consent shall not unreasonably be withheld, delayed or conditioned) (all of the foregoing to be in accordance with Good Utility Practice). 174 LIST OF EXHIBITS Exhibit A Generator's Real Property Exhibit B Pepco Real Property Exhibit C 10 Foot Electric Utility Easement Exhibit D Easement for Oil Pipeline on Pepco Real Property Exhibit E Easement for Oil Pipeline on Retained Assets 175 EXHIBIT D GUARANTEE AGREEMENT THIS GUARANTEE AGREEMENT (the "Agreement"), dated as of _____________, 2000, by and between Southern Energy, Inc., a Delaware ("Guarantor"), and Potomac Electric Power Company, a District of Columbia and Virginia corporation ("Seller"). Guarantor and Seller are referred to herein individually as a "Party" and collectively as the "Parties." WHEREAS, Seller and Guarantor have entered into an Asset Purchase and Sale Agreement dated the date hereof (as amended, supplemented or otherwise modified from time to time, the "Asset Sale Agreement"), pursuant to which Guarantor has agreed to purchase and Seller has agreed to sell certain electric generating assets, as more particularly set forth therein, and each of Guarantor and Seller have undertaken certain duties, responsibilities and obligations as set forth in the Asset Sale Agreement and the Ancillary Agreements (as defined in the Asset Sale Agreement); WHEREAS, subsequent to the execution of the Asset Sale Agreement, Guarantor has assigned to ________________, [its direct/an indirect] wholly-owned subsidiary ("Buyer") [all/certain] of its rights under the Asset Sale Agreement; WHEREAS, as a condition precedent to and in consideration of Seller's entering into the Asset Sale Agreement, Guarantor has agreed to guarantee payment and performance of those covenants, agreements, obligations, liabilities, representations and warranties made by Guarantor (and subsequently assigned to Buyer) under the Asset Sale Agreement, any Ancillary Agreement or any other agreement or instrument related thereto or entered into in connection therewith; and WHEREAS, Guarantor will benefit from the transactions contemplated by the Asset Sale Agreement. NOW, THEREFORE, the Parties agree as follows: SECTION 1. Definitions. Capitalized terms used herein shall have the meanings assigned to them herein or, if not defined herein, then such terms shall have the meanings assigned to them in the Asset Sale Agreement. SECTION 2. Guarantee. Guarantor absolutely, irrevocably and unconditionally guarantees, as a primary obligor and not merely as a surety, (a) the due and punctual payment of (i) each payment required to be made by Buyer under the Asset Sale Agreement or any Ancillary Agreement, when and as due, including payments in respect of reimbursement of disbursements and interest thereon and (ii) all other monetary 176 obligations, including indemnities, fees, costs and expenses, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of Buyer under the Asset Sale Agreement, any Ancillary Agreement or any other agreement or instrument related thereto (all such obligations referred to in this clause (a) being collectively referred to as the "Monetary Obligations") and (b) the due and punctual performance and observance of, and compliance with, all covenants, agreements, obligations, liabilities, representations and warranties of Buyer under or pursuant to the Asset Sale Agreement, any Ancillary Agreement or any other agreement or instrument related thereto (all such obligations referred to in the preceding clauses (a) and (b) being collectively referred to as the "Obligations"). Guarantor further agrees that the Obligations may be extended, amended, modified or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its guarantee notwithstanding any extension, amendment, modification or renewal of any Obligation by Seller and Buyer. SECTION 3. Obligations Not Waived. To the fullest extent permitted by applicable law, Guarantor waives all notices whatsoever with respect to this Agreement or with respect to the Obligations, including presentment to, demand of payment from and protest to Buyer of any of the Obligations, and notice of acceptance of its guarantee and notice of protest for nonpayment. To the fullest extent permitted by applicable law, the obligations of Guarantor hereunder shall not be affected by (a) the failure of Seller to assert any claim or demand or to enforce or exercise any right or remedy against Buyer in respect of the Obligations or otherwise under the provisions of the Asset Sale Agreement, any Ancillary Agreement or otherwise or, in each case, any delay in connection therewith, or (b) any rescission, waiver, amendment or modification of, or any release from any of the terms or provisions of, this Agreement, the Asset Sale Agreement, any Ancillary Agreement or any other agreement. SECTION 4. Continuing Guarantee of Payment and Performance. Guarantor further agrees that its guarantee constitutes a continuing guarantee of payment and performance when due, and not of collection, and Guarantor further waives any right to require that any resort be had by Seller to any security. SECTION 5. No Discharge or Diminishment of Guarantee. (a) The obligations of Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination, or be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever, or otherwise be affected, for any reason (other than the performance in full of all Obligations, including the indefeasible payment in full in cash of all Monetary Obligations, and the termination of all the Obligations), including: (i) any claim of waiver, release, surrender, alteration or compromise of any of the Obligations; (ii) the invalidity, illegality or unenforceability of the Obligations; 177 (iii) the occurrence or continuance of any event of bankruptcy, reorganization, insolvency, receivership or other similar proceeding with respect to Buyer or any other person (for purposes hereof, "person" means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization or Governmental Authority), or the dissolution, liquidation or winding up of Buyer or any other person; (iv) any permitted assignment or other transfer of this Agreement by Seller or any permitted assignment or other transfer of the Asset Sale Agreement or any Ancillary Agreement in whole or in part; (v) any sale, transfer or other disposition by Guarantor of any direct or indirect interest it may have in Buyer or any other change in ownership or control of Buyer; or (vi) the absence of any notice to, or knowledge on behalf of, Guarantor of the existence or occurrence of any of the matters or events set forth in the foregoing clauses. (b) Without limiting the generality of the foregoing, the obligations of Guarantor hereunder shall not be discharged or impaired or otherwise affected by the failure of Seller to assert any claim or demand or to enforce any remedy under the Asset Sale Agreement, any Ancillary Agreement or any other agreement, by any waiver or modification of any provision thereof, by any default, failure or delay, willful or otherwise, in the performance of the Obligations, or by any other act or omission that may or might in any manner or to any extent vary the risk of Guarantor or that would otherwise operate as a discharge of Guarantor as a matter of law or equity (other than the performance in full of all Obligations, including the indefeasible payment in full in cash of all Monetary Obligations, and the termination of all the Obligations). SECTION 6. Defenses Waived. To the fullest extent permitted by applicable law, Guarantor waives any defense based on or arising out of the unenforceability of the Obligations or any part thereof from any cause. Seller may compromise or adjust any part of the Obligations, make any other accommodation with Buyer or exercise any other right or remedy available to it against Buyer, without affecting or impairing in any way the liability of Guarantor hereunder except to the extent all the Obligations have been fully and finally performed, including the indefeasible payment in full of all Monetary Obligations, and terminated. To the fullest extent permitted by applicable law, Guarantor waives any defense arising out of any such election even though such election operates, pursuant to applicable law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of Guarantor against Buyer or any security. Guarantor waives each right and all defenses to which it may be entitled under applicable law as in effect or construed from time to time. SECTION 7. Representations and Warranties of Guarantor. Guarantor represents and warrants to Seller as follows: (a) Organization. Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite 178 corporate power and authority to own, lease and operate its properties and to carry on its business as is now being conducted. (b) Authority Relative to this Agreement. Guarantor has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery by Guarantor of this Agreement and performance by Guarantor of its obligations hereunder have been duly and validly authorized by the Board of Directors of Guarantor and no other corporate proceedings on the part of Guarantor are necessary to authorize this Agreement or performance by Guarantor of its obligations hereunder. This Agreement has been duly and validly executed and delivered by Guarantor and this Agreement constitutes a valid and binding agreement of Guarantor, enforceable against Guarantor in accordance with its terms. (c) Consents and Approvals; No Violation. (i) Subject to obtaining the Buyer Required Regulatory Approvals, neither the execution and delivery of this Agreement by Guarantor nor performance by Guarantor of its obligations hereunder will (i) conflict with or result in any breach of any provision of the organizational or governing documents or instruments of Guarantor, (ii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation to which Guarantor or any of its subsidiaries is a party or by which any of their respective assets may be bound or (iii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Guarantor, or any of its assets, except in the case of clauses (ii) and (iii) for such failures to obtain a necessary consent, defaults and violations which would not, individually or in the aggregate, have a material adverse effect on the ability of Guarantor to discharge its obligations under this Agreement (a "Guarantor Material Adverse Effect"). (ii) No declaration, filing or registration with, or notice to, or authorization, consent or approval of any Governmental Authority is necessary for performance by Guarantor of its obligations hereunder, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made would not, individually or in the aggregate, have a Guarantor Material Adverse Effect. SECTION 8. Agreement to Perform and Pay; Subordination. In furtherance of the foregoing and not in limitation of any other right that Seller has at law or in equity against Guarantor by virtue hereof, upon the failure of Buyer, to perform or pay any Obligation when and as the same shall become due, Guarantor hereby promises to and will forthwith, as the case may be, (a) perform, or cause to be performed, such unperformed Obligations and (b) pay, or cause to be paid, to Seller in cash the amount of such unpaid Monetary Obligations. Upon payment by Guarantor of any sums to Seller as provided above, all rights of Guarantor against Buyer, arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full in cash of all the Monetary Obligations. If any amount shall erroneously be paid to Guarantor on account of (i) such subrogation, contribution, reimbursement, indemnity or similar right or (ii) any such indebtedness of Buyer, such amount shall be held in trust for the benefit of 179 Seller and shall forthwith be paid to Seller to be credited against the payment of the Monetary Obligations or performance in accordance with the terms of the Asset Sale Agreement or any Ancillary Agreement, as applicable. SECTION 9. Information. Guarantor assumes all responsibility for being and keeping itself informed of Buyer's financial condition and assets, and of all other circumstances bearing upon the risk of nonperformance of the Obligations (including the nonpayment of Monetary Obligations) and the nature, scope and extent of the risks that Guarantor assumes and incurs hereunder, and agrees that Seller does not have any duty to advise Guarantor of information known to it regarding such circumstances or risks. SECTION 10. Termination and Reinstatement. The guarantee made hereunder (a) shall terminate when all the Obligations have been (i) performed in full, including the indefeasible payment in full in cash of the Monetary Obligations and (ii) terminated and (b) shall continue to be effective or be reinstated, as the case may be, if at any time any payment, or any part thereof, of any Obligation is rescinded or must otherwise be restored by Seller upon the bankruptcy or reorganization of Buyer or Guarantor or for any other reason. SECTION 11. Assignment; No Third Party Beneficiaries. This Agreement and all of the provisions hereunder shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns, and nothing herein express or implied will give or be construed to give any person any legal or equitable rights hereunder. Neither this Agreement nor any of the rights, interests and obligations hereunder shall be assigned by Guarantor, including by operation of law, without the prior written consent of Seller; provided, however, that no assignment or transfer of rights or obligations by Guarantor shall relieve it from the full liabilities and the full financial responsibility, as provided for under this Agreement, unless and until the transferee or assignee shall agree in writing to assume such obligations and duties and Seller has consented in writing to such assumption. SECTION 12. Amendment and Modification; Extension; Waiver. This Agreement may be amended, modified or supplemented only by an instrument in writing signed on behalf of each of the Parties. Any agreement on the part of a Party to any extension or waiver in respect of this Agreement shall be valid only if set forth in an instrument in writing signed on behalf of such Party. The failure of a Party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. SECTION 13. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the District of Columbia (regardless of the laws that might otherwise govern under applicable principles of conflicts of law). SECTION 14. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given (as of the time of delivery or, in the case of a telecopied communication, of the times of confirmation) if delivered personally, telecopied (which is confirmed) or sent by overnight courier (providing proof of delivery) to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice): 180 if to Seller, to: Potomac Electric Power Company 1900 Pennsylvania Avenue, N.W. Washington, D.C. 20068 Telecopy No.: (202) 261-7889 Attention: William T. Torgerson, General Counsel with a copy to: Dickstein Shapiro Morin & Oshinsky LLP 2101 L Street, N.W. Washington, D.C. 20037-1526 Telecopy No.: (202) 887-0689 Attention: Kenneth M. Simon, Esq. if to Buyer, to: Southern Energy, Inc. 900 Ashwood Parkway Suite 500 Atlanta, Georgia 30338-4780 Telecopier: (770) 821-6575 Attention: with a copy to: Troutman Sanders LLP 1300 I Street, N.W. Suite 500 East Washington, DC 20005 Telecopier: (202) 274-2994 Attention: Benjamin L. Israel, Esq. SECTION 15. Jurisdiction and Enforcement. (a) Each of the Parties irrevocably submits to the exclusive jurisdiction of (i) the Superior Court of the District of Columbia and (ii) the United States District Court for the District of Columbia for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each of the Parties agrees to commence any action, suit or proceeding relating hereto either in the United States District Court for the District of Columbia or, if such suit, action or proceeding may not be brought in such court for jurisdictional reasons, in the Superior Court of the District of Columbia. Each of the Parties further agrees that service of process, summons, notice or 181 document by hand delivery or U.S. registered mail at the address specified for such Party in Section 14 (or such other address specified by such Party from time to time pursuant to Section 14) shall be effective service of process for any action, suit or proceeding brought against such Party in any such court. Each of the Parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the Superior Court of the District of Columbia and (ii) the United States District Court for the District of Columbia and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. (b) The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled equitable relief, including without limitation, an injunction or injunctions to prevent breaches of this Agreement and to specifically enforce the terms and provisions of this Agreement, this being in addition to any other remedy to which they are justly entitled to, whether at law or in equity. SECTION 16. Survival of Agreement. All covenants, agreements, representations and warranties made by Guarantor herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by Seller and shall unconditionally survive the consummation of the transactions contemplated by the Asset Sale Agreement, regardless of any investigation made by Seller or on its behalf, and shall continue in full force and effect as long as any Obligations remain outstanding. SECTION 17. Effectiveness; Counterparts. This Agreement shall become effective when executed by Guarantor and Seller. This Agreement may be executed in two counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument. SECTION 18. Rules of Interpretation. The rules of interpretation specified in Section 12.8 of the Asset Sale Agreement shall be applicable to this Agreement. SECTION 19. Severability. (a) If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible to the fullest extent permitted by applicable law, in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. (b) In the event that the provisions of this Agreement are claimed or held to be inconsistent with any other agreement or instrument evidencing the Obligations, the terms of this Agreement shall remain fully valid and effective. 182 SECTION 20. Entire Agreement. This Agreement embodies the entire agreement and understanding of the Parties in respect of the matters contemplated hereby. There are no restrictions, promises, representations, warranties, covenants or undertakings other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the Parties with respect to the matters contemplated hereby. SECTION 21. Seller hereby appoints _______________, a _______________ of Seller, to be its duly authorized Attorney-in-Fact and in Seller's name to execute, acknowledge and deliver this Agreement as its act and deed. Guarantor hereby appoints _____________, its ______________, to be its duly authorized Attorney-in-Fact and in Buyer's name to execute, acknowledge and deliver this Agreement as its act and deed. IN WITNESS WHEREOF, this Guarantee Agreement has been duly executed and delivered by the Parties as of the date first above written. Attest: POTOMAC ELECTRIC POWER COMPANY By By ------------------------- ------------------------------- Secretary Name: Title: Attest: SOUTHERN ENERGY, INC. By By ------------------------- ------------------------------- Secretary Name: Title: 183 ) DISTRICT OF COLUMBIA ) SS: ) The undersigned, a Notary Public in and for the jurisdiction aforesaid, does hereby certify that ______________, personally known to me (or satisfactorily proven) to be the person who signed as attorney-in-fact for Guarantor named in the foregoing Instrument, personally appeared before me in said jurisdiction, and as such attorney-in-fact and by virtue of the authority vested in him by said Instrument, acknowledged the same to be the act and deed of said corporation, and that he executed and delivered the same as such. WITNESS my hand and official seal this ___ day of ___________, 2000. ---------------------------------- My Commission Expires: Notary Public in and for the District of Columbia 184 ) DISTRICT OF COLUMBIA ) SS: ) The undersigned, a Notary Public in and for the jurisdiction aforesaid, does hereby certify that ______________, personally known to me (or satisfactorily proven) to be the person who signed as attorney-in-fact for Seller named in the foregoing Instrument, personally appeared before me in said jurisdiction, and as such attorney-in-fact and by virtue of the authority vested in him by said Instrument, acknowledged the same to be the act and deed of said corporation, and that he executed and delivered the same as such. WITNESS my hand and official seal this ___ day of ___________, 2000. ------------------------------------- My Commission Expires: Notary Public in and for the District of Columbia 185 EXHIBIT E-1 INTERCONNECTION AGREEMENT (Potomac River) By and Between POTOMAC ELECTRIC POWER COMPANY and ________________________________ Dated ______, 2000 186 INTERCONNECTION AGREEMENT TABLE OF CONTENTS ARTICLE 1 - DEFINITIONS 1 ARTICLE 2 TERM AND TERMINATION 2 2.1 Term 2 2.2 Change in Law 2 2.3 Effect after Termination 2 ARTICLE 3 - CONTINUING OBLIGATIONS AND RESPONSIBILITIES 2 3.1 Interconnection Service 2 3.2 New Construction or Modifications 3 3.2.1 Pepco Construction or Modifications 3 3.2.2 Generator Construction or Modifications 4 3.2.3 Modifications Affecting the Transmission System or the Station 5 3.3 Access, Easements, Conveyances, Licenses, and Restrictions 6 3.4 Facility and Equipment Maintenance 7 3.5 Pepco Facilities and Generator Facilities 7 3.6 Equipment Testing Obligations 7 3.7 Inspections 8 3.8 Information Reporting Obligations 9 3.9 Local Services 10 3.9.1 General 10 3.9.2 Temporary Suspension of Local Services 10 3.10 Pepco Provided Services 11 3.11 Generator Provided Services 11 3.12 Optional Services 12 3.13 Metering and Telemetering 12 3.14 Emergency Procedure 12 3.15 Interconnection Service Interruptions 13 3.16 Unit Status Notification 14 3.17 Scheduled Maintenance Notification and Coordination 14 3.17.1 Local Routine Inspection and Maintenance 14 3.17.2 Transmission Sytem Maintenance 15 3.18 Safety 15 3.18.1 General 15 3.18.2 Switching Tagging and Grounding 15 3.19 Environmental Compliance and Procedures 15 3.20 Operating Committee 16 ARTICLE 4 - OPERATIONS 16 4.1 General 16 4.2 Generator's Operating Obligations 17 4.2.1 General 17 4.2.2 Voltage or Reactive Control Requirements 18
187 4.3 Auditing of Accounts and Records 19 ARTICLE 5 -- COST RESPONSIBILITIES AND BILLING PROCEDURES 19 5.1 Cost Responsibilities for Interconnection Service 19 5.2 Cost Responsibilities for Local Services 19 5.3 Billing Procedures 20 5.4 Billing Disputes 20 ARTICLE 6 - CONFIDENTIALITY 21 6.1 Confidentiality Obligations of Pepco 21 6.2 Confidentiality Obligations of Generator 21 6.3 Confidentiality of Audits 22 6.4 Remedies 22 ARTICLE 7 - EVENTS OF DEFAULT 22 7.1 Events of Default 22 7.2 Remedies 23 ARTICLE 8 - LIMITATION OF LIABILITY 24 8.1 Limitation of Pepco's Liability 24 8.2 Limitation on Generator's Liability 24 8.3 Consequential Damages 24 ARTICLE 9 - INDEMNIFICATION FOR THIRD PARTY CLAIMS 25 9.1 Generator's Indemnification 25 9.2 Pepco's Indemnification 25 9.3 Indemnification Procedures 26 9.4 Survival 26 ARTICLE 10 - INSURANCE 26 10.1 Insurance Coverage 26 10.2 Certificates of Insurance 26 10.3 Additional Insureds and Waiver 26 ARTICLE 11 - FORCE MAJEURE 27 11.1 Effect of Force Majeure 27 11.2 Force Majeure Defined 27 11.3 Notification 27 ARTICLE 12 - DISPUTES 28 12.1 Disputes 28 12.2 Arbitration 28 12.3 FERC Dispute Resolution 29 ARTICLE 13 - REPRESENTATIONS 29 13.1 Representations of Pepco 29 13.2 Representations of Generator 30 ARTICLE 14 - ASSIGNMENT/CHANGE IN CORPORATE IDENTITY 32 14.1 Assignment 32 14.2 Release of Rights and Obligations 32 14.3 Change in Corporate Identity 33 14.4 Successors and Assigns 33
188 ARTICLE 15 - SUBCONTRACTORS 33 ARTICLE 16 - NOTICES 34 16.1 Emergency Notices 34 16.2 Notices 34 ARTICLE 17 - AMENDMENTS 34 17.1 Amendments 34 17.2 FERC Proceedings 34 ARTICLE 18 - MISCELLANEOUS PROVISIONS 35 18.1 Waiver 35 18.2 Labor Relations 35 18.3 No Third Party Beneficiaries 35 18.4 Governing Law 35 18.5 Counterparts 36 18.6 Interpretation 36 18.7 Jurisdiction and Enforcement 36 18.8 Entire Agreement 37 18.9 Severability 37 18.10 Independent Contractor Status 37 18.11 Conflicts 37 SCHEDULE A DEFINITIONS 2 SCHEDULE B Pepco Facilities and Generator Facilities 7 SCHEDULE C - Points of Interconnection 9 SCHEDULE D - Switching, Tagging and Grounding Rules 11 SCHEDULE E - Pepco's Interconnection Standards 14 SCHEDULE F - Local Services 15 SCHEDULE G - Pepco Current Projects 17 SCHEDULE H - Real Time Telemetry List 18
189 INTERCONNECTION AGREEMENT (Potomac River) This Interconnection Agreement ("Agreement") dated as of ____________, 2000 by and between Potomac Electric Power Company ("Pepco") a District of Columbia and Virginia corporation, and __________________ ("Generator") a ___________ [corporation]. Pepco and Generator are each referred to herein as a "Party," and collectively referred to herein as the "Parties." WITNESSETH: WHEREAS, Pepco, and Generator have entered into an Asset Purchase and Sale Agreement for Generating and Related Assets ("Asset Sale Agreement") dated June 7, 2000, for the sale by Pepco to Generator of certain assets comprising the Potomac River electric generation station; WHEREAS, Pepco intends to continue to operate its transmission and distribution businesses from their present locations; WHEREAS, Generator needs Interconnection Service from Pepco for the Potomac River electric generating station; WHEREAS, Pepco needs access to parts of the Generator's assets, and Generator needs access to parts of the Pepco's assets; and WHEREAS, the Parties have agreed in the Asset Sale Agreement to execute this Agreement in order to provide Interconnection Service to Generator and to define continuing responsibilities and obligations of the Parties with respect to the use of the other Party's property, assets and facilities as set forth herein. NOW THEREFORE, in consideration of the mutual representations, covenants and agreements hereinafter set forth, and intending to be legally bound hereby, the Parties hereto agree as follows: ARTICLE 1 DEFINITIONS Capitalized terms used in this Agreement shall have the meanings specified or referred to in Schedule A. 190 ARTICLE 2 TERM AND TERMINATION 2.1 Term. This Agreement shall become effective upon consummation of the Closing ("Effective Date"), and unless terminated sooner in accordance with the terms of this Agreement, shall continue in full force and effect until the earlier to occur of (i) the permanent cessation by the Generator of the power generation functions of the Station or (ii) the permanent cessation of the interconnection functions of the Transmission System. 2.2 Change in Law. If (a) the FERC, any state or state regulatory commission or the PJM Interconnection LLC implements a change in any law, regulation, rule or practice, or (b) Pepco's compliance with a change in any law or regulation, which compliance, in either case, affects, or may reasonably be expected to affect, Pepco's performance under this Agreement, the Parties shall negotiate in good faith any amendments to this Agreement that are necessary to adapt the terms of this Agreement to such change, and Pepco shall file such amendments with the FERC. If the Parties are unable to reach agreement on such amendments, either Party shall have the right to make a unilateral filing with the FERC to modify this Agreement pursuant to Sections 205 or 206 or any other applicable provision of the Federal Power Act and the FERC rules and regulations thereunder; provided that the other Party shall have the right to oppose such filing and to participate fully in any proceeding established by the FERC to address such amendments. 2.3 Effect after Termination. The applicable provisions of this Agreement shall continue in effect after cancellation or termination hereof to the extent necessary to provide for final billings, billing adjustments and payments pertaining to liability and indemnification obligations arising from acts or events that occurred while this Agreement was in effect. ARTICLE 3 CONTINUING OBLIGATIONS AND RESPONSIBILITIES 3.1 Interconnection Service 3.1.1 Subject to the terms and conditions of the Agreement, Pepco shall (a) permit the Station to continue to be interconnected to the Transmission System at the Point of Interconnection, and (b) provide Interconnection Service at the Point of Interconnection. Pepco agrees to permit Generator to interconnect 191 Station as long as Generator continues to operate such facilities pursuant to PJM Requirements and Good Utility Practice. 3.1.2 Interconnection Service shall not include, and Pepco shall not be responsible under this Agreement for (a) transmission service, losses or ancillary services associated with the use of the Transmission System for the delivery of capacity, energy and/or ancillary services produced by the Generating Facilities, or (b) providing or procuring capacity, energy and/or ancillary services to the Generator or the Generating Facilities. 3.1.3 The Generator's interconnection to the Transmission System of any new or expanded generating capacity of the Station shall (a) be subject to PJM Requirements and/or FERC requirements governing interconnections and (b) require a separate interconnection agreement mutually agreed to by the Parties in writing. 3.1.4 Notwithstanding anything to the contrary in this Agreement, Pepco's performance of its obligations under this Agreement shall be subject to Generator entering into, and complying with, any PJM Generator Connection Agreement which may be required pursuant to PJM Requirements with respect to Interconnection Service or the Station. 3.2 New Construction or Modifications 3.2.1 Pepco Construction or Modifications (a) Pepco shall make such additions, modifications, replacements and improvements to the Interconnection Facilities as are required by PJM Requirements or Good Utility Practice to enable Pepco to provide Interconnection Service in compliance with this Agreement. Generator shall pay all reasonable Costs incurred by Pepco for such additions, modifications, replacements or improvements. (b) Except with respect to operation and maintenance or ordinary maintenance done in the ordinary course of business or to respond to abnormal or emergency conditions, if any additions, modifications, replacements or improvements to the Interconnection Facilities undertaken by Pepco might reasonably be expected to affect Generator's operation of the Station, Pepco shall provide one hundred twenty (120) days written notice to Generator prior to undertaking such additions, modifications, replacements or improvements. Any such additions, modifications, replacements or improvements shall comply with PJM Requirements and Good Utility Practice. The Parties shall mutually agree to the 192 scheduling of such addition, modification, replacement or improvement to minimize any adverse impact on the Station. Generator shall be deemed to have accepted Pepco's proposed additions, modifications, replacements or improvements unless Generator gives Pepco written notice of its objections within thirty (30) days after receipt of Pepco's notice. Generator's acceptance or deemed acceptance of Pepco's proposed additions, modifications, replacements or improvements shall not be construed, with respect thereto, as: (i) confirmation or endorsement of the design; (ii) a warranty of safety, durability or reliability; or (iii) responsibility for strength, details of design, adequacy or capability. 3.2.2 Generator Construction or Modifications (a) In the event Generator plans to increase the capacity of the Generating Facilities, Generator shall submit to Pepco any and all plans and specifications that Pepco may reasonably request related to such increase. Such specifications and plans shall be submitted by Generator to Pepco at the time that Generator submits its plans under the PJM Tariff related to such expansion but no later than one hundred twenty (120) days prior to commencing such proposed increase. Any such additions, modifications, or replacements shall comply with PJM Requirements and Good Utility Practice and shall be subject to Section 3.1.3 of this Agreement. (b) If Generator plans any additions, modifications, or replacements to the Station that will not increase its capacity, but could reasonably be expected to affect the Transmission System or the Interconnection Facilities, Generator shall give Pepco reasonable notice, but not less than one hundred twenty (120) days prior written notice and Generator shall comply with all applicable PJM Requirements with respect to such proposed additions, modifications, or replacements. All such additions, modifications, or replacements shall (i) comply with PJM Requirements and Good Utility Practice, (ii) be accompanied by appropriate information and operating instructions, and (iii) be subject to the review and acceptance of Pepco, which review shall be based on PJM Requirements and Good Utility Practice and which acceptance shall not unreasonably be withheld or delayed. Pepco shall be deemed to have accepted Generator's proposed additions, modifications or replacements unless Pepco gives Generator written notice of its objections within thirty (30) days after receipt of the Generator's notice. (c) Pepco's acceptance of Generator's plans and specifications for any proposed additions, modifications, or replacements to the Generating Facilities and Pepco's participation in any interconnected operations with Generator are not and shall not be construed as: (i) confirmation or endorsement of the design of the Generating Facilities; (ii) a warranty of safety, durability or reliability of the 193 Generating Facilities; or (iii) responsibility for strength, details of design, adequacy, or capability of the Generating Facilities. (d) Pepco, pursuant to PJM Requirements, shall inform Generator of any additions, modifications, or replacements to the Transmission System or Interconnection Facilities, that will be necessary as a result of the addition, modification, or replacement to Station made pursuant to Section 3.2.2. Generator shall compensate Pepco for all reasonable Costs it incurs associated with any modifications, additions, or replacements made to the Interconnection Facilities or Transmission System related to any additions, modifications, or replacements to the Generating Facilities. Pepco shall provide an estimate as early as practicable, but in any event not less than sixty (60) days prior to the initiation of such addition, modification or replacement. (e) Generator shall modify, at its sole cost and expense, the Generating Facilities as may be reasonably required to conform with PJM Requirements and Good Utility Practice or to conform with additions, modifications, or replacements of the Transmission System or the Interconnection Facilities, required by PJM Requirements and Good Utility Practice or implemented in accordance with this Agreement, (including, without limitation, changes to the voltages at which the Transmission System is operated) provided, however, that Generator shall not be obligated under this Agreement to modernize, expand or upgrade the Generating Facilities unless the failure to modernize, expand or upgrade is reasonably likely to have a material adverse effect on the operation of Pepco's Facilities. (f) Upon completion of any addition, modification, or replacement to the Generating Facilities that may reasonably be expected to affect the Transmission System or the Interconnection Facilities, but no later than ninety (90) days thereafter, Generator shall issue "as built" drawings to Pepco. Upon completion of any addition, modification, or replacement to the Interconnection Facilities, that may reasonably be expected to affect the operation of the Station, but no later than ninety (90) days thereafter, Pepco shall issue "as built" drawings to the Generator. 3.2.3 Modifications Affecting the Transmission System or the Station (a) Notwithstanding anything herein to the contrary, except with respect to the projects or construction set forth in Schedule G, no modifications to or new construction of facilities, or access thereto, including but not limited to rights of way, fences, gates, shall be made by either Party which might reasonably be expected to adversely affect the other Party with respect to such Party's obligations 194 and responsibilities under this Agreement, without prior written notification as set forth in Section 3.2.3(b) below, and without providing the other Party with sufficient information regarding the work prior to commencement to enable such Party to evaluate the impact of the proposed work on its operations. For all modifications reasonably expected to adversely affect the operations of the other Party's facilities, the Party shall provide at least one hundred twenty (120) days written notice to the other Party prior to undertaking such additions, modifications or replacements. Any such additions, modifications, or replacements shall comply with PJM Requirements and Good Utility Practice. (b) The Parties shall mutually agree to the scheduling of such addition, modification, replacement or improvement proposed pursuant to Section 3.2.3(a) to minimize any adverse impact on the Station or the Transmission System. For all construction work, major modifications, or circuit changes involving new or existing facilities, equipment, systems or circuits that could reasonably be expected to affect the operation of either Party, the Party desiring to perform said work shall provide the other Party with drawings, plans, specifications, and other necessary documentation for review at least sixty (60) days prior to the beginning of construction provided that for routine telecommunication work, the Party doing the work shall only be required to provide 48 hours prior notice. The Party shall be deemed to have accepted the proposed additions, modifications, replacements or improvements unless the Party gives written notice of their objections within sixty (60) days after receipt of such notice. The Party's acceptance or deemed acceptance of the proposed additions, modifications, replacements or improvements shall not be construed, with respect thereto, as: (i) confirmation or endorsement of the design; (ii) a warranty of safety, durability or reliability; or (iii) responsibility for strength, details of design, adequacy or capability. 3.3 Access, Easements, Conveyances, Licenses, and Restrictions 3.3.1 The Parties hereby grant to each other such licenses, access and other rights to the Station and the Interconnection Facilities as may be necessary for either Party's performance of their respective obligations under this Agreement. Such access shall be provided in a manner so as not to unreasonably interfere with the ongoing business operations, rights, and obligations of the other Party and shall be subject to the safety and security practices of the Party granting such access. Access shall only be granted to Qualified Personnel. 3.3.2 A Party shall not restrict a Party's rights hereunder to access the other Party's property, facilities, or equipment without prior written notification except in an Emergency, in which case the restricted access shall last no longer than three (3) days, unless an alternate means of access is provided. 195 3.3.3 The Parties' rights with respect to access to their respective facilities properties shall also be governed by the Easement. 3.4 Facility and Equipment Maintenance 3.4.1 Pepco shall provide Interconnection Service at the Point of Interconnection in a safe and efficient manner and pursuant to PJM Requirements and Good Utility Practice. Generator shall be responsible for all reasonable Costs incurred by Pepco to provide Interconnection Service and to Maintain the Interconnection Facilities pursuant to the Agreement. 3.4.2 Generator shall Maintain the Generating Facilities (including coordination of its relay protection equipment) in a safe and efficient manner and as required by and in accordance with PJM Requirements and Good Utility Practice, provided, however, that Generator shall not be obligated to modernize, expand or upgrade the Generating Facilities unless the failure to modernize, expand or upgrade is reasonably likely to have a material adverse affect on the operation of the Interconnection Facilities or the Transmission System. 3.4.3 Unless otherwise specified herein, or unless the Parties mutually agree to a different arrangement, neither Party shall be responsible for the maintenance of the other Party's equipment or property regardless of its location. 3.4.4 In addition to the requirements set forth elsewhere in this Agreement, each Party shall Maintain its equipment and facilities and perform its maintenance obligations that could reasonably be expected to affect the operations of the other Party in a safe and efficient manner and pursuant to PJM Requirements and Good Utility Practice. 3.5 Pepco Facilities and Generator Facilities. Unless otherwise agreed to by the Parties, the Party owning Pepco Facilities or Generator Facilities shall Maintain those facilities and shall do so pursuant to PJM Requirements and Good Utility Practice and shall make such additions, modifications, replacements and improvements as are required by PJM requirements and Good Utility Practice or which are necessary to maintain Interconnection Service, provided, however, that the Generator shall not be obligated under this Agreement to modernize, expand or upgrade the Generator Facilities unless the failure to modernize, expand or upgrade is reasonably likely to have a material adverse effect on the operation of the Transmission System or Interconnection Facilities. 3.6 Equipment Testing Obligations 196 3.6.1 For reliability purposes with respect to the Interconnection Facilities and the Transmission System, Pepco may reasonably request, pursuant to PJM Requirements, or Good Utility Practice, that Generator test, calibrate, verify, or validate the Generating Facilities or its equipment, and Generator shall promptly comply with such a request. Generator shall be responsible for all costs of testing, calibrating, verifying or validating its facilities. 3.6.2 At Pepco's request, Generator shall supply to Pepco at no cost, copies of inspection reports, installation and maintenance documents, test and calibration records, verifications, and validations pursuant to the foregoing Section 3.6.1. Pepco shall supply to Generator, at Generator's request and at no cost to Generator, copies of inspection reports, installation and maintenance documents, test and calibration records, verifications, and validations that Pepco has which are related to the Interconnection Facilities. 3.7 Inspections 3.7.1 Pepco shall, at its expense, have the right to inspect or observe all maintenance activities, equipment tests, installation work, construction work, and modification work to the Generating Facilities. Such access by Pepco shall be exercised in a manner which does not unreasonably interfere with Generator's ongoing business operations, rights and obligations and shall be subject to Generator's safety and security practices. If Pepco observes any deficiencies or defects with respect thereto that might reasonably be expected to adversely affect the Transmission System or the Interconnection Facilities, Pepco shall notify the Generator, and Generator shall immediately make any corrections necessitated by PJM Requirements and Good Utility Practice. Notwithstanding the foregoing in this Section 3.7.1, Pepco shall have no liability whatsoever for any failure to fully or adequately observe any deficiency, it being agreed that Generator shall be fully responsible and liable for all such deficiencies, activities, equipment tests, installation, construction or modification. 3.7.2 Generator shall, at its expense, have the right to inspect or observe all maintenance activities, equipment tests, installation work, construction work, and modification work conducted by Pepco to the Interconnection Facilities. Such access by Generator shall be exercised in a manner which does not unreasonably interfere with Pepco's ongoing business operations, rights and obligations and shall be subject to Pepco's safety and security practices. If Generator observes any deficiencies or defects with respect thereto that might reasonably be expected to adversely affect the Station, Generator shall notify Pepco, and Pepco shall immediately make any corrections necessitated by applicable PJM Requirements and Good Utility Practice. Notwithstanding the foregoing in this 197 Section 3.7.2, Generator shall have no liability whatsoever for any failure to fully or adequately observe any deficiency, it being agreed that Pepco shall be fully responsible and liable for all such deficiencies, activities, equipment tests, installation, construction or modification. 3.8 Information Reporting Obligations 3.8.1 In order to provide Interconnection Service hereunder, Pepco may request, and Generator shall promptly provide, all relevant information, documents, or data regarding the Generating Facilities that would be expected to materially affect the Transmission System, and which is reasonably requested by NERC, MAAC, the PJM Interconnection LLC, the MDPSC, the District of Columbia Public Service Commission and any other state or District of Columbia agency having jurisdiction over Pepco or Generator, the PJM System Operator, or the Transmission Operator, which disclosure shall be subject to Article 6 of this Agreement regarding the disclosure of commercially sensitive information. 3.8.2 Generator shall promptly supply accurate, complete, and reliable information in response to reasonable information requests for real time data and other data from Pepco necessary for operations, maintenance, compliance with PJM Requirements or regulatory requirements, or analysis of the Interconnection Facilities or the Transmission System. Such information may include metered values for MW and MVAR, voltage, current, automatic voltage regulator status, automatic frequency control, dispatch, frequency, breaker status indication, or any other information reasonably required for reliable operation of the Transmission System pursuant to PJM Requirements and Good Utility Practice. At minimum, Generator shall satisfy the telemetry requirements set forth in Schedule H. 3.8.3 Information pertaining to generation operating parameters shall be gathered and electronically transmitted directly to Pepco's energy management system using a mutually acceptable communications protocol. 3.8.4 Generator shall be responsible for the maintenance, and any required replacements or upgrades of the field devices and equipment used to gather information regarding generation operating parameters. 3.8.5 Generator shall Maintain, at its expense, operating telephone links to the PJM Interconnection LLC, PJM System Operator, Pepco and the Transmission Operator, to provide information deemed necessary by them, or as reasonably deemed necessary by Pepco in accordance with PJM Requirements or Good Utility Practice to integrate operation of the Station with the Transmission 198 System, provided, however, that Generator shall not be obligated under this Agreement to modernize, expand or upgrade the Generator's facilities unless the failure to modernize, expand or upgrade is reasonably likely to have a material adverse effect on the operation of the Transmission System. Generator shall use communication links at the Station consisting of the mobile radio low band C frequency and "all call" and "red phone" systems currently located at the Station (or successor systems as may reasonably be required by Pepco) and shall maintain the availability of such systems to operate during abnormal conditions including blackouts. 3.9 Local Services 3.9.1 General (a) The Parties agree that, due to the integration of certain control schemes of the Station and the Transmission System, it is cost effective to provide each other with the services set forth in Sections 3.10 and 3.11 in accordance with the terms and conditions set forth therein. (b) The Parties shall ensure, in accordance with Good Utility Practice, that services provided by one Party to the other Party pursuant to Sections 3.10 and 3.11 shall be available at all times and in the manner and at the prices specified herein. Notwithstanding the foregoing, either Party may change the services, provided that (1) there is no cost to the receiving Party as a result of such change, (2) the quality, reliability and integrity of the replacement services is equivalent to the existing service, and (3) there is otherwise no materially adverse effect on the receiving Party. (c) Neither Party shall terminate any services set forth in Sections 3.10 and 3.11 below that it agrees to provide to the other Party, without the other Party's prior written consent, which consent shall not be unreasonably withheld or delayed, provided, however, if a Party receiving a service under Sections 3.10 or 3.11 no longer needs or desires a particular service, said Party shall notify the other Party and the providing Party shall terminate said services as soon thereafter as practicable. 3.9.2 Temporary Suspension of Local Services (a) The Party providing a service set forth in Sections 3.10 or 3.11 below shall notify and obtain approval, which approval shall not be unreasonably withheld or delayed, from the receiving Party of any scheduled temporary 199 suspension of services at least five (5) business days in advance of such suspension. Such notification shall include an estimated time duration for a return to normal conditions. (b) In the event of any unplanned or forced suspension of the services set forth in Sections 3.10 or 3.11, below, the providing Party shall immediately notify the other Party first verbally and then in writing. The providing Party shall use all reasonable efforts to minimize the duration of said suspension. (c) The Parties agree to complete any repairs, modifications or corrections, in accordance with Good Utility Practice, that are necessary to restore to the other Party as soon as reasonably practicable any services set forth in Sections 3.10 or 3.11 below that have been suspended. 3.10 Pepco Provided Services: Schedule F sets forth the local services Pepco shall provide to the Generator pursuant to the terms of this Agreement. Unless otherwise specified in Schedule F, for a period of three (3) years after the Effective Date (the "Initial Period") and subject to Section 3.9 above, Pepco shall provide Generator with the local services set forth in Schedule F at no cost and in consideration of the local services Generator shall provide Pepco in accordance with Section 3.11 below. If Generator desires the continuation of any of the services set forth in Schedule F which are subject to the Initial Period to continue after the Initial Period, upon Generator's written request to Pepco made at least 60 days prior to the expiration of the Initial Period, the Parties shall engage in good faith negotiations to reach mutually agreeable terms and conditions upon which such services will continue, provided, however, that if such agreement is not reached prior to the expiration of the Initial Period, Pepco shall cease to provide services under Section 3.10 at the end of the Initial Period. 3.11 Generator Provided Services. Schedule F sets forth the local services Generator shall provide to Pepco pursuant to the terms of this Agreement. Unless otherwise specified in Schedule F, for the Initial Period and subject to Section 3.9 above, Generator shall provide Pepco with the local services set forth in Schedule F at no cost and in consideration of the local services Pepco shall provide Generator in accordance with Section 3.10 above. If Pepco desires the continuation of any of the services set forth in Schedule F which are subject to the Initial Period to continue after the Initial Period, upon Pepco's written request to Generator made at least 60 days prior to the expiration of the Initial Period, the Parties shall engage in good faith negotiations to reach mutually agreeable terms and conditions upon which such services will continue, provided, however, that if such agreement is not reached prior to the expiration of the Initial Period, Generator shall cease to provide services under Section 3.11 at the end of the Initial Period. 200 3.12 Optional Services: Generator may request that Pepco provide the following services to the Generator, provided, however, that Pepco shall not have any obligation to provide such services unless the Parties have mutually agreed in writing to the price and other terms and conditions of such service: (a) PJM interface and dispatch services through the Pepco control center; (b) use of Pepco's communication services; (c) maintenance of certain auxiliary and communications equipment at the Station; (d) maintenance of high-voltage and medium-voltage equipment such as power transformers and power circuit breakers; (e) maintenance of protective relaying, certain control equipment, such as AGC and MSVC, plant batteries and revenue meters owned by Generator. 3.13 Metering and Telemetering 3.13.1 Generator shall, at Generator's expense: (a) own, Maintain, and repair, all Revenue Meters, instrument transformers and appurtenances associated with Revenue Meters, and real time telemetry, (b) conduct meter accuracy and tolerance tests, and (c) prepare all calibration reports required for equipment that measures energy transfers at the Point of Interconnection. All meter accuracy and tolerance testing hereunder shall be in accordance with PJM Requirements and Good Utility Practice and shall be conducted, at Pepco's request, in the presence of Pepco's representative. 3.13.2 Generator shall own and Maintain, at the Generator's expense, equipment for redundant real-time communications and transmission of telemetry, hourly MWh information, and such other information as required by the PJM System Operator or Transmission Operator, or as reasonably required by Pepco in accordance with PJM Requirements and Good Utility Practice. 3.14 Emergency Procedure 3.14.1 Pepco, through the Transmission Operator, shall provide Generator with prompt verbal notification of Emergencies with regard to the Transmission System which may reasonably be expected to affect Generator's 201 immediate operation of the Station or Generator Facilities, and Generator shall provide Pepco with prompt verbal notification of Emergencies with regard to the Station which may reasonably be expected to affect Interconnection Service or the Transmission System. Such notification shall describe the Emergency, the extent of damage or deficiency, the anticipated length of an outage and the corrective action taken and/or to be taken. Said verbal notification shall be followed as soon as practicable (but no later than 24 hours after the verbal notification) with written notification. 3.14.2 If an Emergency in the good faith judgment of a Party endangers or could endanger life or property, the Party recognizing the problem shall take such action as may be reasonable and necessary to prevent, avoid, or mitigate injury, danger, or loss. If however the Emergency involves transmission or electrical equipment, Generator shall notify the Transmission Operator, and obtain the consent of such personnel, prior to performing any switching operations. 3.14.3 Pepco may, consistent with PJM Requirements and Good Utility Practice, have the Transmission System Operator take whatever actions (including tripping Generator's synchronizing breakers) or inactions it deems necessary during an Emergency to: (a) preserve public safety; (b) preserve the integrity of the Transmission System, (c) limit or prevent damage; or (d) expedite restoration of service. If any action or inaction by Pepco or the Transmission Operator under this Section 3.14 results in the discontinuation, curtailment, interruption or reduction of Interconnection Service, Pepco shall use reasonable efforts consistent with PJM Requirements and Good Utility Practice to restore Interconnection Service as promptly as practicable and to minimize the effect of such restoration of service on the Station. 3.15 Interconnection Service Interruptions 3.15.1 If at any time, in the reasonable exercise of the PJM System Operator's judgment, or the Transmission Operator's judgment exercised in accordance with PJM Requirements or Good Utility Practice and on a non-discriminatory basis, a condition exists, including the operation of Generator's equipment, which might reasonably be expected to have a materially adverse affect on the quality of service rendered by Pepco (including services rendered to transmission or distribution customers) or interferes with the safe and reliable operation of the Transmission System, Pepco may discontinue, curtail, reduce and/or interrupt Interconnection Service until the condition has been corrected. 3.15.2 Unless the PJM System Operator, the Transmission Operator or Pepco perceives that an Emergency exists or the risk of one is imminent, Pepco 202 shall give Generator reasonable notice of its intention to discontinue, curtail, interrupt or reduce Interconnection Service in response to the interfering condition and, where practical, allow suitable time for Generator to remove the interfering condition if it is the result of Generator's operations, before the discontinuation, curtailment, interruption or reduction commences. Pepco's judgment with regard to the interruption of service under this paragraph shall be made pursuant to PJM Requirements and Good Utility Practice. In the case of such interruption, Pepco shall immediately confer with Generator regarding the conditions causing such interruption and its recommendation concerning timely correction thereof. In the event Interconnection Service is interrupted under this section due to Generator's failure to operate and Maintain the Generating Facilities pursuant to PJM Requirements or Good Utility Practice, Generator shall compensate Pepco for all costs reasonably incurred by Pepco attributable to the interruption and restoration of Interconnection Service. Pepco shall use reasonable efforts consistent with PJM Requirements and Good Utility Practice to restore Interconnection Service interrupted, curtailed or reduced pursuant to this Section 3.15 as promptly as practicable and to minimize the effect of such restoration of service on the Station. 3.16 Unit Status Notification 3.16.1 Generator acknowledges that Pepco requires information regarding the status of the Station for Transmission System reliability purposes. Accordingly, by 10:00 a.m. of each day, the Generator shall provide Pepco the following information regarding the status of the Station for the following day: Station availability to provide energy and capacity, the Station's scheduled on and off times, Station synchronization, planned outages or deratings, and generation restrictions and limitations. Generator shall immediately notify Pepco of any changes to the information provided pursuant to the foregoing sentence. 3.16.2 In circumstances, such as forced outages, Generator shall notify Pepco of its generating unit's temporary interruption of generation as soon as practicable; and it shall provide Pepco, as soon as practicable, with a schedule of when generation will be resumed. 3.17 Scheduled Maintenance Notification and Coordination 3.17.1 Local Routine Inspection and Maintenance. The Parties agree that, due to the integration of certain control and protective relaying schemes between the Station and the Interconnection Facilities, it will be necessary for them to cooperate in the inspection, maintenance and testing of these areas of integration. Each Party will provide advance notice to the other Party before undertaking any work in these areas, especially in electrical circuits involving circuit breaker trip and 203 close contacts, current transformers or potential transformers and such work will be performed in accordance with PJM Requirements and Good Utility Practice. 3.17.2 Transmission System Maintenance. Pepco shall consult with Generator regarding timing of scheduled maintenance of the Interconnection Facilities or the transmission facilities of the Transmission System which Pepco or the Transmission Operator performs and which might reasonably be expected to affect the Station. Pepco shall, to the extent practicable, schedule any testing, shutdown, or withdrawal of said facilities to coincide with Generator's scheduled outages for the Station. To facilitate such consultation and to the extent the information is not available from the PJM System Operator in a timely manner, in June of each year, or on another date mutually acceptable to the Parties, Generator shall furnish Pepco with non-binding preliminary generator maintenance schedules covering the upcoming two years and any material changes thereto. In the event Pepco is unable to schedule the outage of its facilities to coincide with Generator's schedule, Pepco shall notify Generator as soon as practicable of the reasons for the facilities' outage, of the time scheduled for the outage to take place, and of its expected duration. 3.18 Safety 3.18.1 General. Pepco agrees with respect to the Interconnection Facilities and the Transmission System, and Generator agrees with respect to the Station, that all work performed by either Party on such facilities which could reasonably be expected to affect the operations of the other Party shall be performed in accordance with all applicable PJM Requirements and Good Utility Practice. 3.18.2 Switching Tagging and Grounding . Each Party shall comply with the Switching, Tagging and Grounding Rules. Pepco will notify Generator of any changes in its Switching, Tagging and Grounding Rules. Generator shall be responsible for all switching, tagging and grounding on Generator's side of the Point of Interconnection and, except for Generator Facilities, Pepco shall be responsible for all switching, tagging and grounding on its side of the Point of Interconnection. 3.19 Environmental Compliance and Procedures 3.19.1 Each Party shall be responsible for complying with all Environmental Laws applicable to it with respect to its facilities or property. 204 3.19.2 A Party shall notify the other Party first verbally and then in writing, of any Releases of a Hazardous Substance or any type of remediation activities related thereto as soon as possible but no later than twenty-four (24) hours after the occurrence if within the reasonable judgment of the Party said activities could reasonably be expected to have a material adverse effect upon the operations of the other Party and shall promptly furnish to the other Party copies of any reports filed with any governmental agencies covering such events. This Section 3.19.2 does not effect any allocation of liability with respect to the Station pursuant to the Asset Sale Agreement. 3.19.3 Neither Party shall knowingly take any actions which might reasonably be expected to have a material adverse environmental impact upon the operations of the other Party without prior written notification and agreement between then Parties. 3.20 Operating Committee. The Parties shall establish an operating committee consisting of one representative for each Party ("Operating Committee"). The Operating Committee shall act only by unanimous agreement or consent. The Parties shall designate their respective representatives to the Operating Committee, plus an alternate by written notice. Each Party's representative on the Operating Committee is authorized to act on behalf of such Party with respect to any matter arising under this Agreement which is to be decided by the Operating Committee, however, the Operating Committee shall not have any authority to modify or otherwise alter the rights and obligations of the Parties hereunder. The Operating Committee shall develop and implement suitable policies and procedures with which to coordinate the interaction of the Parties with respect to the performance of their duties and obligations under this Agreement. ARTICLE 4 OPERATIONS 4.1 General 4.1.1 The Parties agree to operate their respective equipment that could reasonably be expected to have a material effect on the operations of the other Party in a safe and efficient manner and in accordance with PJM Requirements and Good Utility Practice, and otherwise in accordance with the terms of this Agreement. 4.1.2 Generator shall comply with the requests, orders, and directives of Pepco with respect to Interconnection Service to the extent such requests, orders 205 or directives are (a) issued pursuant to PJM Requirements or Good Utility Practice, (b) not discriminatory; and (c) otherwise in accordance with this Agreement or applicable tariffs. 4.1.3 In the event Generator believes that a request, order, or directive of Pepco exceeds the limitations in this Section 4.1.2, it shall nevertheless comply with the request, order, or directive pending resolution of the dispute under Article 12. The Parties agree to cooperate in good faith to expedite the resolution of any disputes arising under this Section 4.1. 4.2 Generator's Operating Obligations 4.2.1 General. Generator shall request permission from the Transmission Operator, the PJM System Operator or the PJM Interconnection LLC, as applicable, prior to opening and/or closing circuit breakers in accordance with applicable switching and operations procedures and Good Utility Practice. (a) Generator shall carry out all switching orders from the Transmission Operator, the PJM System Operator, or the PJM Interconnection LLC, in a timely manner and in accordance with PJM Requirements and Good Utility Practice. (b) Generator shall (i) comply with Pepco's system restoration plan and black start criteria applicable to the Station as configured as of the Effective Date or (ii) if the Station's configuration is modified, provide alternative service restoration and black start capability in accordance with PJM Requirements. Generator shall ensure that operating personnel at the Station are trained to implement such system restoration or black start plans. The Generator shall test the Station's black-start combustion-turbines annually to confirm that the black-start combustion-turbines will start without an external power supply. The Generator shall test the Station's steam turbine-generators and those combustion-turbine generators that would be required to be black-started in accordance with Pepco's Emergency Conditions and System Restoration Manual, as revised from time to time, and plant restoration procedures, at least once every three years. Testing shall confirm the ability of a generating unit or Station to go from a shut down condition to an operating condition and start delivering power without assistance from the Transmission System. These testing requirements shall remain in place until PJM promulgates specific rules governing black-start testing. 206 (c) The electricity supplied by Generator to the Point of Interconnection shall be in the form of three-phase 60 Hertz alternating current at the nominal system voltage. (d) Generator's equipment shall conform with Good Utility Practice for harmonic distortion and voltage fluctuation. (e) The Generator shall Maintain the equipment to display and to follow the export/import signal on the export/import meters when directed to do so by Pepco, the Transmission Operator or the PJM System Operator for reliability purposes. 4.2.2 Voltage or Reactive Control Requirements. Unless otherwise agreed to by the Parties or authorized or directed by the PJM Interconnection LLC, Generator shall operate the Station with automatic voltage regulators in service at all times. The voltage regulators will control voltage at the Points of Interconnection consistent with the range of voltage prescribed by Pepco or the Transmission System Operator in accordance with PJM Requirements and Good Utility Practice. (a) Generator will operate the Station in accordance with prescribed voltage schedules pursuant to Section 4.2.2 to the extent the Station is operating within its reactive generating capability and not violating any electrical constraints. Should Generator fail to comply with such voltage schedules, Pepco or the Transmission Operator, as applicable, shall provide written notice to the Generator of its intent to remedy that failure. If Generator does not promptly commence appropriate action after receiving such notice, Pepco or the Transmission Operator may then take any necessary action at Generator's expense to remedy such failure, including the installation of capacitor banks or other reactive compensation equipment necessary to ensure the proper voltage or reactive supply at the Station including, at a minimum, by installing such equipment outside any building housing the Generation Facilities. Pepco shall make, to the extent feasible, reasonable efforts to minimize the impact of such action on the operation of the Station. (b) Generator shall notify the Transmission Operator if (a) any or all generating units at the Station reaches a VAR limit, (b) there is any deviation from the voltage schedules prescribed pursuant to Section 4.2.2 which is outside the limits permitted by PJM Requirements or Good Utility Practice, or (c) any automatic voltage regulator is removed from or restored to service. (c) The Transmission Operator may from time to time, pursuant to PJM Requirements or Good Utility Practice, request or direct Generator to 207 adjust generator controls that impact the Transmission System, such as excitation, droop, and automatic generation control settings and Generator shall comply with such request or directions. (d) Generator acknowledges that the Transmission Operator may have the right, to the extent authorized or directed by the PJM Interconnection LLC, to require reduced or increased generation of the Station in accordance with PJM Requirements, or in accordance with applicable rules of the Transmission Operator. 4.3 Auditing of Accounts and Records. The Parties shall have the right, during normal business hours, to audit each other's accounts and records pertaining to transactions under this Agreement, upon twenty (20) days prior written notice, at the offices where such accounts and records are maintained, provided, however, that the audit shall be limited to those portions of the accounts and records that are related to services provided to the other Party under this Agreement. Any such audit of a Party's accounts and records will be at the expense of the auditing Party, shall not be made more frequently than once in any twelve (12) month period, and no such audit may be made with respect to accounts and records relating to periods more than twenty-four (24) months prior to the date of the audit notice. The Party being audited will be entitled to review the audit report and any supporting materials. The Party conducting the audit shall maintain the confidentiality of all information obtained during the audit in compliance with Article 6 of this Agreement. To the extent that audited information includes confidential information, the auditing Party shall designate an independent auditor at its expense to perform such audit. ARTICLE 5 COST RESPONSIBILITIES AND BILLING PROCEDURES 5.1 Cost Responsibilities for Interconnection Service. Except as otherwise expressly stated herein, Generator shall not be responsible for any costs arising from Pepco's provision of Interconnection Service or local services to Generator, except for those costs specified in Sections 3.2.1, 3.2.2, 3.4.1, and 3.15 or arising from the liability or indemnification provisions of this Agreement. 5.2 Cost Responsibilities for Local Services. Except as otherwise expressly provided herein or agreed to by the Parties, each Party shall be responsible for the costs for local services provided to the other Party in Sections 3.10 and 3.11 as set forth in said sections. 208 5.3 Billing Procedures (a) Within ten (10) days after the first day of each calendar month, each Party shall provide the other Party with a written invoice for any payments due from the other Party for services provided in the previous month. (b) Each invoice shall (i) delineate the month in which the services were provided, (ii) fully describe the services rendered, (iii) be itemized to reflect the services performed or provided, and (iv) provide reasonable detail as to the calculation of the amount involved. (c) All invoices shall be paid within fifteen (15) days after receipt, but not earlier than the 25th day of the month in which the invoice is rendered. All payments shall be made in immediately available funds payable to the other Party, or by wire transfer to a bank designated in writing by such Party. Payment of invoices shall not relieve the paying Party from any responsibilities or obligations it has under this Agreement, nor shall such payment constitute a waiver of any claims arising hereunder. 5.3.2 To the extent that, for any billing period, Generator is obligated to pay to Pepco amounts due and calculated pursuant to Section 5.3, Pepco may use such amounts as a set-off against any amounts owed by Pepco to Generator under this Section 5.3. 5.3.3 Interest on any unpaid amounts shall be calculated in accordance with the methodology specified for interest on refunds in FERC regulations at 18 C.F.R. Section 35.19a(a)(2)(iii). Interest on delinquent amounts shall be calculated from the due date of the bill to the date of payment. When payments are made by mail, bills shall be considered as having been paid on the date of receipt by the other Party. 5.4 Billing Disputes. In the event of a billing dispute between the Parties, each Party shall continue to provide services as long as the other Party continues to make all payments not in dispute. Payment of invoices by either Party shall not relieve the paying Party from any responsibilities or obligations it has under this Agreement; nor shall it constitute a waiver of any claims arising hereunder. 209 ARTICLE 6 CONFIDENTIALITY 6.1 Confidentiality Obligations of Pepco. Pepco shall hold in confidence, unless compelled to disclose by judicial or administrative process or other provisions of law, all documents and information furnished by Generator in connection with this Agreement marked "Confidential" or "Proprietary." Except to the extent that such information or documents are (i) generally available to the public other than as a result of a disclosure by Pepco in breach of this Agreement, (ii) available to Pepco on a non-confidential basis prior to disclosure to Pepco by Generator, or (iii) available to Pepco on a non-confidential basis from a source other than Generator, provided that such source is not known, and by reasonable effort could not be known, by Pepco to be bound by a confidentiality agreement with Generator or otherwise prohibited from transmitting the information to Pepco by a contractual, legal or fiduciary obligation, Pepco shall not release or disclose such information to any other person, except to its employees, representatives or agents on a need-to-know basis, in connection with this Agreement who has not first been advised of the confidentiality provisions of this Section 6.1 and has agreed in writing to comply with such provisions. In no event shall such information be disclosed in violation of the requirements of FERC Orders 889 and 889-A, and any successor thereto. Pepco shall promptly notify Generator if it receives notice or otherwise concludes that the production of any information subject to this Section 6.1 is being sought under any provision of law and Pepco shall use reasonable efforts in cooperation with Generator to seek confidential treatment for such confidential information provided thereto. 6.2 Confidentiality Obligations of Generator. Generator shall hold in confidence, unless compelled to disclose by judicial or administrative process or other provisions of law, all documents and information furnished by Pepco in connection with this Agreement marked "Confidential" or "Proprietary." Except to the extent that such information or documents are (i) generally available to the public other than as a result of a disclosure by Generator in breach of this Agreement, (ii) available to Generator on a non-confidential basis prior to disclosure to Generator by Pepco, or (iii) available to Generator on a non-confidential basis from a source other than Pepco, provided that such source is not known, and by reasonable effort could not be known, by Generator to be bound by a confidentiality agreement with Pepco or otherwise prohibited from transmitting the information to Generator by a contractual, legal or fiduciary obligation, Generator shall not release or disclose such information to any other person, except to its employees, representatives or agents on a need-to-know basis, in connection with this Agreement who has not first been advised of the confidentiality provisions of this Section 6.2 and has agreed in writing to comply with such provisions. In no 210 event shall such information be disclosed in violation of the requirements of FERC Orders 889 and 889-A, and any successor thereto. Generator shall promptly notify Pepco if it receives notice or otherwise concludes that the production of any information subject to this Section 6.2 is being sought under any provision of law and Generator shall use reasonable efforts in cooperation with Pepco to seek confidential treatment for such confidential information provided thereto. 6.3 Confidentiality of Audits. The independent auditor performing any audit, as referred to in Section 4.3, shall be subject to a confidentiality agreement between the auditor and the Party being audited. Such audit information shall be treated as confidential except to the extent that its disclosure is required by regulatory or judicial order, for reliability purposes pursuant to PJM Requirements or Good Utility Practice, and pursuant to the FERC's rules and regulations. Except as provided herein, neither Party will disclose the audit information to any third party, without the other Party's prior written consent. Audit information in the hands of the Party not being audited shall be subject to all provisions of Section 6.1 or 6.2, above, as applicable. 6.4 Remedies. The Parties agree that monetary damages would be inadequate to compensate a Party for the other Party's breach of its obligations under Section 6.1 or 6.2, above, as applicable. Each Party accordingly agrees, subject to Article 8, that the other Party shall be entitled to equitable relief, by way of injunction or otherwise, if the first Party breaches or threatens to breach its obligations under Section 6.1 or 6.2 of this Agreement, as applicable, which equitable relief shall be granted without bond or proof of damages, and the receiving Party shall not plead in defense that there would be an adequate remedy at law. ARTICLE 7 EVENTS OF DEFAULT 7.1 Events of Default. Each of the following shall constitute an Event of Default by the a defaulting Party under this Agreement: (a) The failure by a Party to pay any amount due within twenty (20) calendar days after receipt of written notice of nonpayment by the other Party, unless the payment of such amount is disputed in good faith, in which event Section 5.5 shall apply; (b) A Party's breach of any material term or condition of this Agreement, including but not limited to any material breach of a representation, 211 warranty or covenant made in this Agreement which, after receiving written notice of the breach from the non-breaching Party (such notice to set forth in reasonable detail the nature of the default and, where known and if applicable, the steps necessary to cure such default), (i)the breaching Party fails to cure, if curable, within thirty (30) days following receipt of the notice or (ii) if such default is of such a nature that it cannot be cured within thirty (30) days following receipt of such notice, the breaching Party fails within such thirty (30) days to commence the necessary cure and fails at any time thereafter diligently and continuously to prosecute such cure to completion provided that the cure is completed no later than 180 days after the receipt of the default notice; (c) The appointment of a receiver, liquidator or trustee for either Party, and such receiver, liquidator or trustee is not discharged within sixty (60) days; (d) The entry of a decree or decrees adjudicating a Party as bankrupt or insolvent, and such decree or decrees are not stayed or discharged within sixty (60) days; or (e) The filing of voluntary petitions for bankruptcy under any federal or state bankruptcy law by a Party. 7.2 Remedies 7.2.1 If the breaching Party disputes that an Event of Default under Section 7.1.(b) has occurred, the breaching Party shall nonetheless comply with this Section 7.2 pending the resolution of the dispute. If it is determined that no breach or Event of Default under Section 7.1(b) existed, the Party alleging the default shall pay and reimburse the other Party for all reasonable costs and expenses incurred by it to cure the alleged default. 7.2.2 Upon the occurrence of an Event of Default, the non-defaulting Party may (i) exercise all such rights and remedies as may be available to it at law or equity including seeking to recover damages caused by such Event of Default, subject to Article 8 of this Agreement; and/or (ii) terminate this Agreement. The Parties shall not discontinue the performance of any one or more of their obligations hereunder due to the occurrence of an Event of Default during the pendency of any dispute regarding such Event of Default and until such dispute is finally resolved except that Pepco may suspend or interrupt service if necessary for the safe and reliable operation of the Interconnection Facilities or the Transmission System. 212 7.2.3 Notwithstanding the foregoing, upon the occurrence of any Event of Default, the non-defaulting Party shall be entitled to commence an action to require the defaulting Party to remedy such default by specifically performance of its duties and obligations hereunder in accordance with the terms and conditions hereof. 7.2.4 Notwithstanding anything in this Agreement to the contrary, in the event the Generator's failure to comply with the provisions of Sections 4.1 and 4.2 of this Agreement is reasonably likely to have an immediate and material adverse impact on Pepco or the Transmission System, Pepco shall have the right to take immediately reasonable steps and/or to exercise immediately all remedies available under this Agreement, or at law or equity, including the right, after providing as much notice as is practicable under the circumstances and complying with the applicable FERC notice requirements regarding termination of service, to disconnect the Station from the Transmission System. ARTICLE 8 LIMITATION OF LIABILITY 8.1 Limitation of Pepco's Liability. Pepco does not guarantee the non-occurrence of, or warrant against, and will have no liability hereunder for, and the Generator will release Pepco from all claims or damages associated with, any interruption in the availability of the Interconnection Facilities, Interconnection Service or local services pursuant to Section 3.10 or damages to the Generator's facilities, except to the extent such interruption or damage is caused by Pepco's gross negligence or willful misconduct in the performance of its obligations under this Agreement. 8.2 Limitation on Generator's Liability. Generator does not guarantee the non-occurrence of, or warrant against, and will have no liability under this Agreement for, and Pepco will release Generator from all claims or damages arising under this Agreement which are associated with any interruption in the availability of the Station or local services pursuant to Section 3.11, any reduction, curtailment, interruption or reduction of energy from the Station, or damage to Pepco's facilities, except to the extent such interruption or damage is caused by Generator's gross negligence or willful misconduct in the performance of its obligations under the Agreement. 8.3 Consequential Damages. Except for indemnity obligations set forth in Article 9, neither Party, nor their respective officers, directors, agents, employees, Affiliates, or successors or assigns of any of them, shall be liable to the other Party or its Affiliates, officers, directors, agents, employees, successors or assigns for claims, 213 suits, actions or causes of action for incidental, punitive, special, indirect, multiple or consequential damages (including, without limitation, replacement power costs, lost revenues, claims of customers, attorneys' fees and litigation costs) connected with, or resulting from, performance or non-performance of this Agreement, or any actions undertaken in connection with or related to this Agreement, including, without limitation, any such damages which are based upon causes of action for breach of contract, tort (including negligence and misrepresentation), breach of warranty or strict liability. The provisions of this Section 8.3 shall apply regardless of fault and shall survive termination, cancellation, suspension, completion, or expiration of this Agreement. ARTICLE 9 INDEMNIFICATION FOR THIRD PARTY CLAIMS 9.1 Generator's Indemnification. Generator shall indemnify, hold harmless, and defend Pepco and its Affiliates, as the case may be, and their respective officers, directors, employees, agents, contractors, subcontractors, invitees, successors and permitted assigns from and against any and all claims, liabilities, costs, damages, and expenses (including, without limitation, reasonable attorney and expert fees, and disbursements incurred by any of them in any action or proceeding between Pepco and a third party or Generator) for damage to property of unaffiliated third parties, injury to or death of any person, including Pepco's employees or any third parties, to the extent caused, by the negligence or willful misconduct of Generator's and/or its officers, directors, employees, agents, contractors, subcontractors or invitees arising out of or connected with Generator's performance or breach of this Agreement, or the exercise by Generator of its rights hereunder. In furtherance of the foregoing indemnification and not by way of limitation thereof, Generator hereby waives any defense it might otherwise have under applicable workers' compensation laws. 9.2 Pepco's Indemnification. Pepco shall indemnify, hold harmless, and defend Generator and its Affiliates, as the case may be, and their respective officers, directors, employees, agents, contractors, subcontractors, invitees, successors and permitted assigns from and against any and all claims, liabilities, costs, damages, and expenses (including, without limitation, reasonable attorney and expert fees, and disbursements incurred by any of them in any action or proceeding between the Generator and a third party or Pepco) for damage to property of unaffiliated third parties, injury to or death of any person, including Generator's employees or any third parties, to the extent caused by the negligence or willful misconduct of Pepco and/or its officers, directors, employees, agents, contractors, subcontractors or invitees arising out of or connected with Pepco's performance or breach of this Agreement, or the exercise by Pepco of its rights hereunder. In furtherance of the 214 foregoing indemnification and not by way of limitation thereof, Pepco hereby waives any defense it might otherwise have under applicable workers' compensation laws. 9.3 Indemnification Procedures. If either Party intends to seek indemnification under this Article 9 from the other Party, the Party seeking indemnification shall give the other Party notice of such claim within ninety (90) days of the later of the commencement of, or the Party's actual knowledge of, such claim or action. Such notice shall describe the claim in reasonable detail, and shall indicate the amount (estimated if necessary) of the claim that has been, or may be sustained by, said Party. To the extent that the other Party will have been actually and materially prejudiced as a result of the failure to provide such notice, such notice will be a condition precedent to any liability of the other Party under the provisions for indemnification contained in this Agreement. Neither Party may settle or compromise any claim without the prior consent of the other Party; provided, however, said consent shall not be unreasonably withheld or delayed. 9.4 Survival. The indemnification obligations of each Party under this Article 9 shall continue in full force and effect regardless of whether this Agreement has either expired or been terminated or canceled. ARTICLE 10 INSURANCE 10.1 Insurance Coverage. The Parties shall maintain at their own cost and expense, fire, liability, worker's compensation, and other forms of insurance relating to their respective property and facilities subject to this Agreement in the manner, and amounts, and for the durations as is customary in the electric utility industry. 10.2 Certificates of Insurance. The Parties agree to furnish each other with certificates of insurance evidencing the insurance coverage obtained in accordance with this Article 10, and the Parties agree to notify and send copies to the other of any policies maintained hereunder upon written request by a Party. Each Party must notify the other Party within ten (10) business days of receiving notice of cancellation, change, amendment or renewal of any insurance policy required pursuant to Section 10.1 above. 10.3 Additional Insureds and Waiver. Each Party and its affiliates shall be named as additional insureds on the general liability insurance policies obtained in accordance with Section 10.1, above, as regards liability under this Agreement; and 215 each Party shall waive its rights of recovery against the other for any loss or damage covered by such policy. ARTICLE 11 FORCE MAJEURE 11.1 Effect of Force Majeure. Notwithstanding anything in this Agreement to the contrary, Generator and Pepco shall not be liable in damages or otherwise or responsible to the other for its failure to carry out any of its obligations under this Agreement (except for the obligation to pay sums of money due and owing hereunder) to the extent that they are unable to so perform or are prevented from performing by an event of Force Majeure and has complied with Section 11.3. 11.2 Force Majeure Defined. Force Majeure means those causes beyond the reasonable control of the Party affected, which by the exercise of reasonable diligence, including Good Utility Practice, that Party is unable to prevent, avoid, mitigate, or overcome, including the following: any act of God, labor disturbance (including a strike), act of the public enemy, war, insurrection, riot, fire, storm or flood, explosion, breakage or accident to machinery or equipment, electric system disturbance), order, regulation or restriction imposed by governmental, military or lawfully established civilian authorities, or any other cause of a similar nature beyond a Party's reasonable control. 11.3 Notification. A Party shall not be entitled to rely on the occurrence of an event of Force Majeure as a basis for being excused from performance of its obligations under this Agreement, unless the Party relying on the event or condition shall: (a) provide prompt written notice of such Force Majeure event to the other Party, including an estimation of its expected duration and the probable impact on the performance of its obligations hereunder; (b) exercise all reasonable efforts in accordance with Good Utility Practice to continue to perform its obligations under this Agreement; (c) expeditiously take action to correct or cure the event or condition excusing performance; (d) exercise all reasonable efforts to mitigate or limit damages to the other Party; and (e) provide prompt notice to the other Party of the cessation of the event or condition giving rise to its excuse from performance. Subject to this Section 11.3, any obligation under this Agreement shall be suspended only to the extent caused by such Force Majeure and only during the continuance of any inability of performance caused by such Force Majeure but for no longer period. 216 ARTICLE 12 DISPUTES 12.1 Disputes 12.1.1 A Party with a claim or dispute under this Agreement shall submit to the Operating Committee a notification of such claim or dispute within sixty (60) days after the circumstances that gave rise to the claim or the question or issue in dispute. The notification shall be in writing and shall include a concise statement of the claim or the issue or question in dispute, a statement of the relevant facts and documentation to support the claim. In the event the Operating Committee is unable, in good faith, to resolve their disagreement in a manner satisfactory to both Parties within thirty (30) days after receipt by the Operating Committee of a notification specifying the claim, issue or question in dispute, the Parties shall refer the dispute to their respective senior management. If, after using their good faith best efforts to resolve the dispute, senior management cannot resolve the dispute within thirty (30) days, the Parties shall utilize the arbitration procedures set forth below in Section 12.2 to resolve a dispute, provided that nothing herein or therein shall prohibit either Party from at any time requesting from a court of competent jurisdiction a temporary restraining order, preliminary injunction, or other similar form of equitable relief to enforce performance of the provisions of this Agreement. 12.2 Arbitration. (a) Unless the Parties other wise mutually agree in writing to another form of dispute resolution such as dispute resolution under the PJM Agreement or the MAAC agreement, any arbitration initiated under this Agreement shall be conducted before a single neutral arbitrator appointed by the Parties within thirty (30) days of receipt by respondent of the demand for arbitration. If the Parties are unable to agree on an arbitrator, such arbitration shall be appointed by the American Arbitration Association. Unless the Parties agree otherwise, the arbitrator shall be an attorney or retired judge with at least fifteen (15) years of experience, and shall not have any current or past substantial business or financial relationships with any Party to the arbitration. If possible, the arbitrator shall have experience in the electric utility industry. Unless otherwise agreed, the arbitration shall be conducted in accordance with the American Arbitration Association's Commercial Arbitration Rules, then in effect. Any arbitration proceedings, decision or award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act of the 217 United States, 9 U.S.C. Section 1 et seq. The location of any arbitration hereunder shall be in the District of Columbia. (b) The arbitration shall, if possible, be concluded not later than six (6) months after the date that it is initiated. The arbitrator shall be authorized only to interpret and apply the provisions of this Agreement or any related agreements entered into under this Agreement and shall have no power to modify or change any of the above in any manner. The arbitrator shall have no authority to award punitive or multiple damages or any damages inconsistent with this Agreement. The arbitrator shall, within thirty (30) days of the conclusion of the hearing, unless such time is extended by agreement of the Parties, notify the Parties in writing of his or her decision, stating his or her reasons for such decision and separately listing his or her findings of fact and conclusions of law. The decision of the arbitrator rendered in such a proceeding shall be final and binding on the Parties. Judgment on the award may be entered upon it in any court having jurisdiction. 12.3 FERC Dispute Resolution. Nothing in this Agreement shall preclude, or be construed to preclude, any Party from filing a petition or complaint with FERC with respect to any arbitrable claim over which FERC has jurisdiction. In such case, the other Party may request FERC to reject or to waive jurisdiction. If FERC rejects or waives jurisdiction with respect to all or a portion of the claim, the portion of the claim not so accepted by FERC shall be resolved through arbitration, as provided in this Agreement. To the extent that FERC asserts or accepts jurisdiction over the claim, the decision, finding of fact or order of FERC shall be final and binding, subject to judicial review under the Federal Power Act, and any arbitration proceedings that may have commenced with respect to the claim prior to the assertion or acceptance of jurisdiction by FERC shall be terminated. ARTICLE 13 REPRESENTATIONS 13.1 Representations of Pepco. Pepco hereby represents and warrants to Generator as follows: (a) Incorporation. Pepco is a corporation duly organized, validly existing and in good standing under the laws of the District of Columbia and the Commonwealth of Virginia, and has all requisite corporate power and authority to own, lease and operate its material assets and properties and to carry on its business as now being conducted. 218 (b) Authority. Pepco has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery by Pepco of this Agreement and the consummation by Pepco of the transactions contemplated hereunder have been duly and validly authorized by the Board of Directors of Pepco or by a committee thereof to whom such authority has been delegated and no other corporate proceedings on the part of Pepco are necessary to authorize this Agreement or the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Pepco and, assuming that this Agreement constitutes a valid and binding agreement of Generator, constitutes a valid and binding agreement of Pepco, enforceable by Pepco in accordance with its terms. (c) Consents and Approvals; No Violation. (i) Neither the execution and delivery of this Agreement by Pepco nor performance by Pepco of its obligations hereunder will (A) conflict with or result in any breach of any provision of the Certificate of Incorporation or By-laws of Pepco, (B) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation to which Pepco or any of its subsidiaries is a party or by which any of their respective assets may be bound or (C) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Pepco, or any of its assets, except in the case of clauses (B) and (C) for such failures to obtain a necessary consent, defaults and violations which would not, individually or in the aggregate, have a material adverse effect on the ability of Pepco to discharge its obligations under this Agreement (a "Pepco Material Adverse Effect"). (ii) No declaration, filing or registration with, or notice to, or authorization, consent or approval of any governmental authority is necessary for performance by Pepco of its obligations hereunder, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made would not, individually or in the aggregate, have a Pepco Material Adverse Effect. 13.2 Representations of Generator. Generator hereby represents and warrants to Pepco as follows: (a) Incorporation. Generator is a [corporation] duly [incorporated], validly existing and in good standing under the laws of the State of __________, and has all requisite [corporate] power and authority to own, lease and 219 operate its material assets and properties and to carry on its business as now being conducted. (b) Authority. Generator has all necessary [corporate] power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery by the Generator of this Agreement and the consummation by Generator of the transactions contemplated hereby have been duly and validly authorized the [Board of Directors] of Generator or by a committee thereof to whom such authority has been delegated and no other [corporate] proceedings on the part of Generator are necessary to authorize this Agreement or the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Generator and, assuming that this Agreement constitutes a valid and binding agreement of Pepco, constitutes a valid and binding agreement of Generator, enforceable against Generator in accordance with its terms. (c) Consents and Approvals. (i) Neither the execution and delivery of this Agreement by Generator nor performance by Generator of its obligations hereunder will (A) conflict with or result in any breach of any provision of the [Certificate of Incorporation or By-laws] of Generator, (B) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation to which Generator or any of its subsidiaries is a party or by which any of their respective assets may be bound or (C) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Generator, or any of its assets, except in the case of clauses (B) and (C) for such failures to obtain a necessary consent, defaults and violations which would not, individually or in the aggregate, have a material adverse effect on the ability of Generator to discharge its obligations under this Agreement (a "Generator Material Adverse Effect"). (ii) No declaration, filing or registration with, or notice to, or authorization, consent or approval of any Governmental Authority is necessary for performance by Generator of its obligations hereunder, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made would not, individually or in the aggregate, have a Generator Material Adverse Effect. 220 ARTICLE 14 ASSIGNMENT/CHANGE IN CORPORATE IDENTITY 14.1 Assignment. (a) Except as set forth in this Article 14, neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned by either Party hereto, without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. (b) Subject to Section 14.2, upon ten (10) days prior written notice to Generator, Pepco may assign this Agreement, and Pepco's rights, interests and obligations hereunder, to (i) an Affiliate of Pepco that owns all or part of Pepco's Transmission System or (ii) an independent system operator or independent transmission company whose control over all or part of Pepco's Transmission System has been approved by the FERC. (c) Subject to Section 14.2, Generator may (a) assign any of its rights and obligations hereunder to an Affiliate to the extent necessary for the Generator to qualify as an exempt wholesale generator under Section 32 of the Public Utility Holding Company Act of 1935, as amended, and (b) assign, transfer, pledge or otherwise dispose of its rights and interests hereunder to a trustee, lending institution, or other Person for the purposes of financing or refinancing the Station, including upon or pursuant to the exercise of remedies under such financing or refinancing, or by way of assignments, transfers, conveyances of dispositions in lieu thereof; provided, however, that no such assignment shall relieve or in any way discharge Generator from the performance of its duties and obligations under this Agreement. Pepco agrees to execute and deliver, at Generator's expense, such documents as may be reasonably necessary to accomplish any such assignment, transfer, conveyance, pledge or disposition of rights hereunder for purposes of the financing or refinancing of the Facility, so long as Pepco's rights under this Agreement are not thereby altered, amended, diminished or otherwise impaired. (d) Subject to Section 14.2, either Party may assign this Agreement to a successor to all or substantially all of the assets of such Party by way of merger, consolidation, sale or otherwise, provided such successor assumes in writing and becomes liable for all of such Party's duties and obligations hereunder. 14.2 Release of Rights and Obligations. No assignment, transfer, conveyance, pledge or disposition of rights, interests, duties or obligations under this Agreement by a Party shall relieve that Party from liability and financial 221 responsibility for the performance thereof after any such transfer, assignment, conveyance, pledge or disposition unless and until (i) the transferee or assignee shall agree in writing to assume the obligations and duties of that Party under this Agreement and to impose such obligations on subsequent permitted transferees and assignees and (ii) the non-assigning Party has consented in writing to such assumption and to a release of the assigning Party from such liability, such consent not to be unreasonably withheld or delayed. 14.3 Change in Corporate Identity. If Generator terminates its existence as a [corporate] entity by merger, acquisition, sale, consolidation or otherwise, or if all or substantially all of Generator's assets are transferred to another person or business entity without complying with this Article 14, Pepco shall have the right, enforceable in a court of competent jurisdiction, to enjoin Generator's successor from using the Station in any manner that does not comply with the requirements of this Agreement or that impedes Pepco's ability to carry on its ongoing business operations. 14.4 Successors and Assigns. This Agreement and all of the provisions hereof are binding upon, and inure to the benefit of, the Parties and their respective successors and permitted assigns. ARTICLE 15 SUBCONTRACTORS Nothing in this Agreement shall prevent the Parties from utilizing the services of subcontractors as they deem appropriate, provided, however, the Parties agree that, where applicable, all said subcontractors shall comply with the terms and conditions of this Agreement. The creation of any subcontract relationship shall not relieve the hiring Party of any of its obligations under this Agreement. Each Party shall be fully responsible to the other Party for the acts and/or omission of any subcontractor it hires as if no subcontract had been made. Any obligation imposed by this Agreement upon the Parties, where applicable, shall be equally binding upon and shall be construed as having application to any subcontractor. The Parties shall each be liable for, indemnify, and hold harmless the other Party, their Affiliates and their officers, directors, employees, agents, servants, and assigns from and against any and all claims, demands, or actions, from the other Party's subcontractors; and shall pay all costs, expenses and legal fees associated therewith and all judgments, decrees and awards rendered therein. No subcontractor is intended to be or shall be deemed a third-party beneficiary of this Agreement. 222 ARTICLE 16 NOTICES 16.1 Emergency Notices. At or prior to the Effective Date, each Party shall indicate to the other Party, by notice, the appropriate person during each eight-hour work shift to contact in the event of an emergency, a scheduled or forced interruption or reduction in services. The notice last received by a Party shall be effective until modified in writing by the other Party. 16.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given (as of the time of delivery or, in the case of a telecopied communication, of confirmation) if delivered personally, telecopied (which is confirmed) or sent by overnight courier (providing proof of delivery) to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice): if to Pepco, to: Potomac Electric Power Company 1900 Pennsylvania Avenue, N.W. Washington, D.C. 20068 Telecopier: (202) ________________ Attention: ___________________ if to Generator, to: c/o Southern Energy, Inc. 900 Ashwood Parkway Suite 500 Atlanta, Georgia 30338-4780 Telecopier: (770) 821-6575 Attention: ARTICLE 17 AMENDMENTS 17.1 Amendments. Except as set forth in Sections 2.2 and 17.2 of this Agreement, this Agreement may be amended, modified, or supplemented only by written agreement of both Pepco and Generator. 17.2 FERC Proceedings 223 (a) Pepco may unilaterally make application to FERC under Section 205 of the Federal Power Act and pursuant to the FERC's rules and regulations promulgated thereunder for, or exercise any rights it may have under Section 206 of the Federal Power Act and the regulations thereunder with respect to, a change in any rates, terms and conditions, charges, classification of service, rule or regulation for any services Pepco provides under this Agreement over which FERC has jurisdiction. (b) Generator may exercise its rights under Section 205 or 206 of the Federal Power Act and pursuant to FERC's rules and regulations promulgated thereunder with respect to any rate, term, condition, charge, classification of service, rule or regulation for any services provided under this Agreement over which FERC has jurisdiction. ARTICLE 18 MISCELLANEOUS PROVISIONS 18.1 Waiver. Except as otherwise provided in this Agreement, any failure of a Party to comply with any obligation, covenant, agreement, or condition herein may be waived by the Party entitled to the benefits thereof only by a written instrument signed by the Party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement, or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. 18.2 Labor Relations. The Parties agree to immediately notify the other Party, verbally and then in writing, of any labor dispute or anticipated labor dispute which may reasonably be expected to affect the operations of the other Party. 18.3 No Third Party Beneficiaries. Nothing in this Agreement is intended to confer upon any other person except the Parties any rights or remedies hereunder or shall create any third party beneficiary rights in any person. No provision of this Agreement shall create any rights in any such persons in respect of any benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement except as expressly provided for thereunder. 18.4 Governing Law This Agreement shall be governed by and construed in accordance with the laws of the District of Columbia (regardless of the laws that might otherwise govern under applicable principles of conflicts of law). 224 18.5 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 18.6 Interpretation. When a reference is made in this Agreement to an Article, Section, Schedule or exhibit, such reference shall be to an Article or Section of, or Schedule or exhibit to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation" or equivalent words. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Unless otherwise expressly stated otherwise herein, the word "day" shall mean any calendar day including weekends and holidays. Any agreement, instrument, statute, regulation, rule or order defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument, statute, regulation, rule or order as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes, regulations, rules or orders) by succession of comparable successor statutes, regulations, rules or orders and references to all attachments thereto and instruments incorporated therein. References to a person are also to its permitted successors and assigns. Each Party acknowledges that it has been represented by counsel in connection with the review and execution of this Agreement, and, accordingly, there shall be no presumption that this Agreement or any provision hereof be construed against the Party that drafted this Agreement. 18.7 Jurisdiction and Enforcement. Each of the Parties irrevocably submits to the exclusive jurisdiction of (i) the Superior Court of the District of Columbia and (ii) the United States District Court for the District of Columbia, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each of the Parties agrees to commence any action, suit or proceeding relating hereto either in the United States District Court for the District of Columbia or, if such suit, action or proceeding may not be brought in such court for jurisdictional reasons, in the Superior Court of the District of Columbia. Each of the Parties further agrees that service of process, summons, notice or document by hand delivery or U.S. registered mail at the address specified for such Party in Section 16.2 (or such other address specified by such Party from 225 time to time pursuant to Section 16.2) shall be effective service of process for any action, suit or proceeding brought against such Party in any such court. Each of the Parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the Superior Court of the District of Columbia and (ii) the United States District Court for the District of Columbia, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 18.8 Entire Agreement. This Agreement, Asset Sale Agreement, the Confidentiality Agreement and the Ancillary Agreements including the Exhibits, Schedules, documents, certificates and instruments referred to herein or therein and other contracts, agreements and instruments contemplated hereby or thereby, embody the entire agreement and understanding of the Parties in respect of the transactions contemplated by this Agreement. There are no restrictions, promises, representations, warranties, covenants or undertakings other than those expressly set forth or referred to herein or therein. This Agreement, the Asset Sale Agreement and the Ancillary Agreements supersede all prior agreements and understandings between the Parties with respect to the transactions contemplated by this Agreement other than the Confidentiality Agreement. 18.9 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. 18.10 Independent Contractor Status. Nothing in this Agreement shall be construed as creating any relationship between Pepco and Generator other than that of independent contractors. 18.11 Conflicts. Except with respect to the amendments, indemnification, liability, default and remedies provisions contained herein or as otherwise expressly provided herein, in the event of any conflict or inconsistency between the terms of this Agreement and the terms of the Asset Sale Agreement, the terms of the Asset Sale Agreement shall prevail. 226 IN WITNESS WHEREOF, Pepco and Generator have caused this Interconnection Agreement (Potomac River) to be signed by their respective duly authorized officers as of the date first above written. POTOMAC ELECTRIC POWER COMPANY By: ---------------------------------------- Name: Title: [GENERATOR] By: ---------------------------------------- Name: Title: 227 SCHEDULE A DEFINITIONS Part A. Capitalized terms not defined in the body of the Agreement shall have the meaning set forth in Part A of this Schedule A. (Part B of this Schedule A sets forth capitalized terms defined within the Agreement.) (1) "Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. (2) "Ancillary Agreements" has the meaning set forth in the Asset Sale Agreement. (3) "Closing" has the meaning set forth in the Asset Sale Agreement. (4) "Confidentiality Agreement" has the meaning set forth in the Asset Sale Agreement. (5) "Costs" means all costs, including without limitation, any Taxes, costs of acquiring real property, costs and fees for permits, franchises, licenses and regulatory approvals except to the extent that such costs are allocated to a party or parties other than the Generator by the PJM Interconnection LLC or otherwise under the PJM Tariff or PJM Agreement. (6) "Easement" means the Easement Agreement dated __________, 2000, between the Parties with respect to the Station. (7) "Environmental Laws" means all former, current and future federal, state, local and foreign laws (including common law), treaties, regulations, rules, ordinances, codes, decrees, judgments, directives or orders (including consent orders) and environmental permits, in each case, relating to pollution or protection of the environment or natural resources, including laws relating to Releases or threatened Releases, or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, arrangement for disposal, transport, recycling or handling, of Hazardous Substances. (8) "Emergency" means (a) with respect to Pepco, a condition or situation which Pepco, the PJM Interconnection LLC, the PJM System Operator or the Transmission Operator deem imminently likely to (i) endanger life or property, or (ii) adversely affect or impair the Transmission System, Pepco's electrical system or the electrical or transmission systems of others to which the Transmission System or Pepco's electrical system are directly or indirectly connected and (b) with respect to the Generator, a condition or situation which the Generator deems imminently likely to (i) endanger life or property, or (ii) adversely affect or impair the Station. (9) "FERC" means the Federal Energy Regulatory Commission or its successors. 228 (10) "Generating Facilities" means the Station and any additional generating plants, turbines or other generating facilities constructed by Generator after the Effective Date at the site of the Station. (11) "Generator" has the meaning set forth in the introductory paragraph of this Agreement and shall include its permitted successors and assigns. (12) "Generator Facilities" mean the equipment and facilities owned by the Generator but located on Pepco's property which are identified in Schedule B of this Agreement. (13) "Good Utility Practice" means any of the applicable practices, methods and acts. (a) required by FERC, NERC, MAAC, the PJM Interconnection LLC, the PJM System Operator, or the successor of any of them, whether or not the Party whose conduct is at issue is a member thereof, (b) required by applicable law or regulations, (c) required by the Pepco Interconnection Standards or the policies and standards of Pepco relating to emergency operations; (d) otherwise engaged in or approved by a significant portion of the electric utility industry during the relevant time period; which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with law, regulation, good business practices, reliability, safety, and expedition. Good Utility Practice is not intended to be limited to the optimum practice, method, or act to the exclusion of all others, but rather to be acceptable practices, methods, or acts generally accepted in the region. (14) "Hazardous Substances" means (i) any petrochemical or petroleum products, crude oil or any fraction thereof, ash, radioactive materials, radon gas, asbestos in any form, urea formaldehyde foam insulation or polychlorinated biphenyls, (ii) any chemicals, materials, substances or wastes defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "restricted hazardous materials," "extremely hazardous substances," "toxic substances," "contaminants" or "pollutants" or words of similar meaning and regulatory effect contained in any Environmental Law or (iii) any other chemical, material, substance or waste which is prohibited, limited or regulated by any Environmental Law. (15) "Interconnection Facilities" means those facilities or portions of facilities owned or operated by Pepco to provide Interconnection Service which shall include, but not be limited to (1) facilities the cost of which is reasonably allocated to the Interconnection Service provided to the Station, or (2) Attachment Facilities or Local Upgrade Facilities, as defined in the PJM Tariff, which are associated with the Interconnection Service and operated and maintained by Pepco. 229 (16) "Interconnection Service" means the services provided by Pepco which are necessary to connect the Station to the Transmission System for parallel operation of the Station and to enable Generator to transmit the energy and ancillary services produced by the Station to the Transmission System and receive Station energy service and ancillary services, including blackstart power, from the Generator's supplier. (17) "MAAC" means the Mid-Atlantic Area Council, a reliability council under Section 202 of the Federal Power Act established pursuant to the MAAC Agreement dated August 1, 1994, or any successor thereto. (18) "Maintain" means construct, reconstruct, install, inspect, repair, replace, operate, patrol, maintain, use, modernize, expand, upgrade, or other similar activities. (19) "MDPSC" means the Maryland Public Service Commission or any successor agency thereto. (20) "NERC" means North American Electric Reliability Council or any successor thereto. (21) "Pepco" has the meaning set forth in the introductory paragraph of this Agreement and shall include its permitted successors or assigns. (22) "Pepco Facilities" means the equipment and facilities owned by Pepco but located on Generator's property which are identified in Schedule B of this Agreement. (23) "Pepco Interconnection Standards" means Pepco's Interconnection and Parallel Operating Guidelines as amended, modified or replaced from time to time. A copy of the existing Pepco Interconnection Standards is attached hereto as Schedule E. (24) "Point of Interconnection" means each ownership point of demarcation set forth in Schedule C where capacity, energy and ancillary services are transferred between the Station and the Transmission System. (25) "Pepco Transmission Facilities" means those transmission, substation, and communication facilities and related equipment, including the Interconnection Facilities, and any additions, modifications or replacements thereto, that are utilized to provide Interconnection Service to the Station. (26) "PJM" means the Pennsylvania New Jersey-Maryland interconnected power pool operated under the PJM Agreement and any successor thereto including any regional transmission operator, independent system operator, transco, or any other independent system administrator that possesses operational or planning control over the T ransmission System. (27) "PJM Agreement" means the Amended and Restated Operating Agreement of the PJM Interconnection LLC dated as of June 2, 1997. 230 (28) "PJM Control Area" shall mean the control area recognized by NERC as the PJM Control Area. (29) "PJM Interconnection LLC" means the independent system operator of the PJM Control Area pursuant to the PJM Operating Agreement and the PJM Tariff. (30) "PJM Generator Connection Agreement" means the interconnection agreement entered into between the Generator and the PJM Interconnection LLC pursuant to the PJM Tariff with respect to the interconnection of the Station and the Transmission System. (31) "PJM Reliability Agreement" means the Reliability Assurance Agreement dated June 2, 1997 among the load serving entities of PJM. (32) "PJM Requirements" means the rules, regulations or other requirements of PJM or MAAC contained in or adopted pursuant to the PJM Agreement, the PJM Tariff or the PJM Reliability Agreement which are applicable to Pepco, with respect to the Transmission System or the Interconnection Service, and the Generator with respect to the Generating Facilities. (33) "PJM System Operator" shall mean the PJM Interconnection LLC, energy control center staff responsible for central dispatch as provided in the PJM Agreement. (34) "PJM Tariff" means the PJM Open Access Transmission Tariff providing transmission service within the PJM Control Area. (35) "Qualified Personnel" means individuals who possess any required licenses and are trained for their positions and duties by Generator and/or Pepco pursuant to Good Utility Practice. (36) "Release" means any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture. (37) "Revenue Meters" means all MWh and MVArh meters, pulse isolation relays, pulse conversion relays, transducers required by Pepco or the PJM Interconnection or PJM System Operator for billing or other purposes, and associated totalizing equipment, appurtenances and compensation required to measure the transfer of energy across the Point of Interconnection. (38) "Station" means the Potomac River Station as defined in the Asset Sale Agreement. (39) "Switching, Tagging, and Grounding Rules" means Pepco's switching, tagging and grounding rules as amended, modified or replaced from time to time. A copy of the existing Switching, Tagging and Grounding Rules is attached hereto as Schedule D. 231 (40) "Taxes" means all taxes, surtaxes, charges, fees, levies, penalties or other assessments imposed by any United States federal, state, local or foreign taxing authority, including income taxes, excise, property, sales, transfer, franchise, special franchise, payroll, recording, withholding, social security or other taxes, in each case including any interest, penalties or additions attributable thereto. (41) "Transmission System" means the facilities owned, controlled, or operated by Pepco, for purposes of providing transmission service, including services under the PJM Tariff, and Interconnection Service. (42) "Transmission Operator" means the person, or persons designated by Pepco to coordinate the day to day interconnection of the Station with the Transmission System. Part B. The following terms have the meaning specified in the section of this Agreement set forth opposite to such term:
Term Agreement Reference Agreement Preamble Asset Sale Agreement Preamble Effective Date Section 2.1 Event of Default Section 8.1 Force Majeure Section 11.1 Initial Period Section 3.10 Operating Committee Section 3.20 Party or Parties Preamble Term Article 2
232 EXHIBIT E-2 INTERCONNECTION AGREEMENT (Morgantown) By and Between POTOMAC ELECTRIC POWER COMPANY and --------------------------- Dated , 2000 ------------ 233 INTERCONNECTION AGREEMENT TABLE OF CONTENTS ARTICLE 1 - DEFINITIONS 1 ARTICLE 2 TERM AND TERMINATION 2 2.1 Term 2 2.2 Change in Law 2 2.3 Effect after Termination 2 ARTICLE 3 - CONTINUING OBLIGATIONS AND RESPONSIBILITIES 2 3.1 Interconnection Service 2 3.2 New Construction or Modifications 3 3.2.1 Pepco Construction or Modifications 3 3.2.2 Generator Construction or Modifications 4 3.2.3 Modifications Affecting the Transmission System or the Station 5 3.3 Access, Easements, Conveyances, Licenses, and Restrictions 6 3.4 Facility and Equipment Maintenance 7 3.5 Pepco Facilities and Generator Facilities 7 3.6 Equipment Testing Obligations 7 3.7 Inspections 8 3.8 Information Reporting Obligations 9 3.9 Local Services 10 3.9.1 General 10 3.9.2 Temporary Suspension of Local Services 10 3.10 Pepco Provided Services 11 3.11 Generator Provided Services 11 3.12 Optional Services 12 3.13 Metering and Telemetering 12 3.14 Emergency Procedure 12 3.15 Interconnection Service Interruptions 13 3.16 Unit Status Notification 14 3.17 Scheduled Maintenance Notification and Coordination 14 3.17.1 Local Routine Inspection and Maintenance 14 3.17.2 Transmission Sytem Maintenance 15 3.18 Safety 15 3.18.1 General 15 3.18.2 Switching Tagging and Grounding 15 3.19 Environmental Compliance and Procedures 15 3.20 Operating Committee 16 ARTICLE 4 - OPERATIONS 16 4.1 General 16 4.2 Generator's Operating Obligations 17 4.2.1 General 17 4.2.2 Voltage or Reactive Control Requirements 18
234 4.3 Auditing of Accounts and Records 19 ARTICLE 5 -- COST RESPONSIBILITIES AND BILLING PROCEDURES 19 5.1 Cost Responsibilities for Interconnection Service 19 5.2 Cost Responsibilities for Local Services 19 5.3 Billing Procedures 19 5.4 Billing Disputes 20 ARTICLE 6 - CONFIDENTIALITY 20 6.1 Confidentiality Obligations of Pepco 20 6.2 Confidentiality Obligations of Generator 21 6.3 Confidentiality of Audits 22 6.4 Remedies 22 ARTICLE 7 - EVENTS OF DEFAULT 22 7.1 Events of Default 22 7.2 Remedies 23 ARTICLE 8 - LIMITATION OF LIABILITY 24 8.1 Limitation of Pepco's Liability 24 8.2 Limitation on Generator's Liability 24 8.3 Consequential Damages 24 ARTICLE 9 - INDEMNIFICATION FOR THIRD PARTY CLAIMS 25 9.1 Generator's Indemnification 25 9.2 Pepco's Indemnification 25 9.3 Indemnification Procedures 25 9.4 Survival 26 ARTICLE 10 - INSURANCE 26 10.1 Insurance Coverage 26 10.2 Certificates of Insurance 26 10.3 Additional Insureds and Waiver 26 ARTICLE 11 - FORCE MAJEURE 27 11.1 Effect of Force Majeure 27 11.2 Force Majeure Defined 27 11.3 Notification 27 ARTICLE 12 - DISPUTES 27 12.1 Disputes 27 12.2 Arbitration 28 12.3 FERC Dispute Resolution 29 ARTICLE 13 - REPRESENTATIONS 29 13.1 Representations of Pepco 29 13.2 Representations of Generator 30 ARTICLE 14 - ASSIGNMENT/CHANGE IN CORPORATE IDENTITY 31 14.1 Assignment 31 14.2 Release of Rights and Obligations 32 14.3 Change in Corporate Identity 32 14.4 Successors and Assigns 33
235 ARTICLE 15 - SUBCONTRACTORS 33 ARTICLE 16 - NOTICES 33 16.1 Emergency Notices 33 16.2 Notices 33 ARTICLE 17 - AMENDMENTS 34 17.1 Amendments 34 17.2 FERC Proceedings 34 ARTICLE 18 - MISCELLANEOUS PROVISIONS 35 18.1 Waiver 35 18.2 Labor Relations 35 18.3 No Third Party Beneficiaries 35 18.4 Governing Law 35 18.5 Counterparts 35 18.6 Interpretation 35 18.7 Jurisdiction and Enforcement 36 18.8 Entire Agreement 36 18.9 Severability 37 18.10 Independent Contractor Status 37 18.11 Conflicts 37 SCHEDULE A - DEFINITIONS 2 SCHEDULE B - Pepco Facilities and Generator Facilities 7 SCHEDULE C - Points of Interconnection 9 SCHEDULE D - Switching, Tagging and Grounding Rules 10 SCHEDULE E - Pepco's Interconnection Standards 14 SCHEDULE F - Local Services 15 SCHEDULE G - Pepco Current Projects 17 SCHEDULE H - Real Time Telemetry List 18
236 INTERCONNECTION AGREEMENT (Morgantown) This Interconnection Agreement ("Agreement") dated as of _________, 2000 by and between Potomac Electric Power Company ("Pepco") a District of Columbia and Virginia corporation, and _____________ ("Generator") a ___________ [corporation]. Pepco and Generator are each referred to herein as a "Party," and collectively referred to herein as the "Parties." WITNESSETH: WHEREAS, Pepco, and Generator have entered into an Asset Purchase and Sale Agreement for Generating and Related Assets ("Asset Sale Agreement") dated June 7, 2000, for the sale by Pepco to Generator of certain assets comprising the Morgantown electric generation station; WHEREAS, Pepco intends to continue to operate its transmission and distribution businesses from their present locations; WHEREAS, Generator needs Interconnection Service from Pepco for the Morgantown electric generating station; WHEREAS, Pepco needs access to parts of the Generator's assets, and Generator needs access to parts of the Pepco's assets; and WHEREAS, the Parties have agreed in the Asset Sale Agreement to execute this Agreement in order to provide Interconnection Service to Generator and to define continuing responsibilities and obligations of the Parties with respect to the use of the other Party's property, assets and facilities as set forth herein. NOW THEREFORE, in consideration of the mutual representations, covenants and agreements hereinafter set forth, and intending to be legally bound hereby, the Parties hereto agree as follows: ARTICLE 1 DEFINITIONS Capitalized terms used in this Agreement shall have the meanings specified or referred to in Schedule A. 237 ARTICLE 2 TERM AND TERMINATION 2.1 Term. This Agreement shall become effective upon consummation of the Closing ("Effective Date"), and unless terminated sooner in accordance with the terms of this Agreement, shall continue in full force and effect until the earlier to occur of (i) the permanent cessation by the Generator of the power generation functions of the Station or (ii) the permanent cessation of the interconnection functions of the Transmission System. 2.2 Change in Law. If (a) the FERC, any state or state regulatory commission or the PJM Interconnection LLC implements a change in any law, regulation, rule or practice, or (b) Pepco's compliance with a change in any law or regulation, which compliance, in either case, affects, or may reasonably be expected to affect, Pepco's performance under this Agreement, the Parties shall negotiate in good faith any amendments to this Agreement that are necessary to adapt the terms of this Agreement to such change, and Pepco shall file such amendments with the FERC. If the Parties are unable to reach agreement on such amendments, either Party shall have the right to make a unilateral filing with the FERC to modify this Agreement pursuant to Sections 205 or 206 or any other applicable provision of the Federal Power Act and the FERC rules and regulations thereunder; provided that the other Party shall have the right to oppose such filing and to participate fully in any proceeding established by the FERC to address such amendments. 2.3 Effect after Termination. The applicable provisions of this Agreement shall continue in effect after cancellation or termination hereof to the extent necessary to provide for final billings, billing adjustments and payments pertaining to liability and indemnification obligations arising from acts or events that occurred while this Agreement was in effect. ARTICLE 3 CONTINUING OBLIGATIONS AND RESPONSIBILITIES 3.1 Interconnection Service 3.1.1 Subject to the terms and conditions of the Agreement, Pepco shall (a) permit the Station to continue to be interconnected to the Transmission System at the Point of Interconnection, and (b) provide Interconnection Service at the Point of Interconnection. Pepco agrees to permit Generator to interconnect 238 Station as long as Generator continues to operate such facilities pursuant to PJM Requirements and Good Utility Practice. 3.1.2 Interconnection Service shall not include, and Pepco shall not be responsible under this Agreement for (a) transmission service, losses or ancillary services associated with the use of the Transmission System for the delivery of capacity, energy and/or ancillary services produced by the Generating Facilities, or (b) providing or procuring capacity, energy and/or ancillary services to the Generator or the Generating Facilities. 3.1.3 The Generator's interconnection to the Transmission System of any new or expanded generating capacity of the Station shall (a) be subject to PJM Requirements and/or FERC requirements governing interconnections and (b) require a separate interconnection agreement mutually agreed to by the Parties in writing. 3.1.4 Notwithstanding anything to the contrary in this Agreement, Pepco's performance of its obligations under this Agreement shall be subject to Generator entering into, and complying with, any PJM Generator Connection Agreement which may be required pursuant to PJM Requirements with respect to Interconnection Service or the Station. 3.2 New Construction or Modifications 3.2.1 Pepco Construction or Modifications (a) Pepco shall make such additions, modifications, replacements and improvements to the Interconnection Facilities as are required by PJM Requirements or Good Utility Practice to enable Pepco to provide Interconnection Service in compliance with this Agreement. Generator shall pay all reasonable Costs incurred by Pepco for such additions, modifications, replacements or improvements. (b) Except with respect to operation and maintenance or ordinary maintenance done in the ordinary course of business or to respond to abnormal or emergency conditions, if any additions, modifications, replacements or improvements to the Interconnection Facilities undertaken by Pepco might reasonably be expected to affect Generator's operation of the Station, Pepco shall provide one hundred twenty (120) days written notice to Generator prior to undertaking such additions, modifications, replacements or improvements. Any such additions, modifications, replacements or improvements shall comply with PJM Requirements and Good Utility Practice. The Parties shall mutually agree to the 239 scheduling of such addition, modification, replacement or improvement to minimize any adverse impact on the Station. Generator shall be deemed to have accepted Pepco's proposed additions, modifications, replacements or improvements unless Generator gives Pepco written notice of its objections within thirty (30) days after receipt of Pepco's notice. Generator's acceptance or deemed acceptance of Pepco's proposed additions, modifications, replacements or improvements shall not be construed, with respect thereto, as: (i) confirmation or endorsement of the design; (ii) a warranty of safety, durability or reliability; or (iii) responsibility for strength, details of design, adequacy or capability. 3.2.2 Generator Construction or Modifications (a) In the event Generator plans to increase the capacity of the Generating Facilities, Generator shall submit to Pepco any and all plans and specifications that Pepco may reasonably request related to such increase. Such specifications and plans shall be submitted by Generator to Pepco at the time that Generator submits its plans under the PJM Tariff related to such expansion but no later than one hundred twenty (120) days prior to commencing such proposed increase. Any such additions, modifications, or replacements shall comply with PJM Requirements and Good Utility Practice and shall be subject to Section 3.1.3 of this Agreement. (b) If Generator plans any additions, modifications, or replacements to the Station that will not increase its capacity, but could reasonably be expected to affect the Transmission System or the Interconnection Facilities, Generator shall give Pepco reasonable notice, but not less than one hundred twenty (120) days prior written notice and Generator shall comply with all applicable PJM Requirements with respect to such proposed additions, modifications, or replacements. All such additions, modifications, or replacements shall (i) comply with PJM Requirements and Good Utility Practice, (ii) be accompanied by appropriate information and operating instructions, and (iii) be subject to the review and acceptance of Pepco, which review shall be based on PJM Requirements and Good Utility Practice and which acceptance shall not unreasonably be withheld or delayed. Pepco shall be deemed to have accepted Generator's proposed additions, modifications or replacements unless Pepco gives Generator written notice of its objections within thirty (30) days after receipt of the Generator's notice. (c) Pepco's acceptance of Generator's plans and specifications for any proposed additions, modifications, or replacements to the Generating Facilities and Pepco's participation in any interconnected operations with Generator are not and shall not be construed as: (i) confirmation or endorsement of the design of the Generating Facilities; (ii) a warranty of safety, durability or reliability of the 240 Generating Facilities; or (iii) responsibility for strength, details of design, adequacy, or capability of the Generating Facilities. (d) Pepco, pursuant to PJM Requirements, shall inform Generator of any additions, modifications, or replacements to the Transmission System or Interconnection Facilities, that will be necessary as a result of the addition, modification, or replacement to Station made pursuant to Section 3.2.2. Generator shall compensate Pepco for all reasonable Costs it incurs associated with any modifications, additions, or replacements made to the Interconnection Facilities or Transmission System related to any additions, modifications, or replacements to the Generating Facilities. Pepco shall provide an estimate as early as practicable, but in any event not less than sixty (60) days prior to the initiation of such addition, modification or replacement. (e) Generator shall modify, at its sole cost and expense, the Generating Facilities as may be reasonably required to conform with PJM Requirements and Good Utility Practice or to conform with additions, modifications, or replacements of the Transmission System or the Interconnection Facilities, required by PJM Requirements and Good Utility Practice or implemented in accordance with this Agreement, (including, without limitation, changes to the voltages at which the Transmission System is operated) provided, however, that Generator shall not be obligated under this Agreement to modernize, expand or upgrade the Generating Facilities unless the failure to modernize, expand or upgrade is reasonably likely to have a material adverse effect on the operation of Pepco's Facilities. (f) Upon completion of any addition, modification, or replacement to the Generating Facilities that may reasonably be expected to affect the Transmission System or the Interconnection Facilities, but no later than ninety (90) days thereafter, Generator shall issue "as built" drawings to Pepco. Upon completion of any addition, modification, or replacement to the Interconnection Facilities, that may reasonably be expected to affect the operation of the Station, but no later than ninety (90) days thereafter, Pepco shall issue "as built" drawings to the Generator. 3.2.3 Modifications Affecting the Transmission System or the Station (a) Notwithstanding anything herein to the contrary, except with respect to the projects or construction set forth in Schedule G, no modifications to or new construction of facilities, or access thereto, including but not limited to rights of way, fences, gates, shall be made by either Party which might reasonably be expected to adversely affect the other Party with respect to such Party's obligations 241 and responsibilities under this Agreement, without prior written notification as set forth in Section 3.2.3(b) below, and without providing the other Party with sufficient information regarding the work prior to commencement to enable such Party to evaluate the impact of the proposed work on its operations. For all modifications reasonably expected to adversely affect the operations of the other Party's facilities, the Party shall provide at least one hundred twenty (120) days written notice to the other Party prior to undertaking such additions, modifications or replacements. Any such additions, modifications, or replacements shall comply with PJM Requirements and Good Utility Practice. (b) The Parties shall mutually agree to the scheduling of such addition, modification, replacement or improvement proposed pursuant to Section 3.2.3(a) to minimize any adverse impact on the Station or the Transmission System. For all construction work, major modifications, or circuit changes involving new or existing facilities, equipment, systems or circuits that could reasonably be expected to affect the operation of either Party, the Party desiring to perform said work shall provide the other Party with drawings, plans, specifications, and other necessary documentation for review at least sixty (60) days prior to the beginning of construction provided that for routine telecommunication work, the Party doing the work shall only be required to provide 48 hours prior notice. The Party shall be deemed to have accepted the proposed additions, modifications, replacements or improvements unless the Party gives written notice of their objections within sixty (60) days after receipt of such notice. The Party's acceptance or deemed acceptance of the proposed additions, modifications, replacements or improvements shall not be construed, with respect thereto, as: (i) confirmation or endorsement of the design; (ii) a warranty of safety, durability or reliability; or (iii) responsibility for strength, details of design, adequacy or capability. 3.3 Access, Easements, Conveyances, Licenses, and Restrictions 3.3.1 The Parties hereby grant to each other such licenses, access and other rights to the Station and the Interconnection Facilities as may be necessary for either Party's performance of their respective obligations under this Agreement. Such access shall be provided in a manner so as not to unreasonably interfere with the ongoing business operations, rights, and obligations of the other Party and shall be subject to the safety and security practices of the Party granting such access. Access shall only be granted to Qualified Personnel. 3.3.2 A Party shall not restrict a Party's rights hereunder to access the other Party's property, facilities, or equipment without prior written notification except in an Emergency, in which case the restricted access shall last no longer than three (3) days, unless an alternate means of access is provided. 242 3.3.3 The Parties' rights with respect to access to their respective facilities properties shall also be governed by the Easement. 3.4 Facility and Equipment Maintenance 3.4.1 Pepco shall provide Interconnection Service at the Point of Interconnection in a safe and efficient manner and pursuant to PJM Requirements and Good Utility Practice. Generator shall be responsible for all reasonable Costs incurred by Pepco to provide Interconnection Service and to Maintain the Interconnection Facilities pursuant to the Agreement. 3.4.2 Generator shall Maintain the Generating Facilities (including coordination of its relay protection equipment) in a safe and efficient manner and as required by and in accordance with PJM Requirements and Good Utility Practice, provided, however, that Generator shall not be obligated to modernize, expand or upgrade the Generating Facilities unless the failure to modernize, expand or upgrade is reasonably likely to have a material adverse affect on the operation of the Interconnection Facilities or the Transmission System. 3.4.3 Unless otherwise specified herein, or unless the Parties mutually agree to a different arrangement, neither Party shall be responsible for the maintenance of the other Party's equipment or property regardless of its location. 3.4.4 In addition to the requirements set forth elsewhere in this Agreement, each Party shall Maintain its equipment and facilities and perform its maintenance obligations that could reasonably be expected to affect the operations of the other Party in a safe and efficient manner and pursuant to PJM Requirements and Good Utility Practice. 3.5 Pepco Facilities and Generator Facilities Unless otherwise agreed to by the Parties, the Party owning Pepco Facilities or Generator Facilities shall Maintain those facilities and shall do so pursuant to PJM Requirements and Good Utility Practice and shall make such additions, modifications, replacements and improvements as are required by PJM requirements and Good Utility Practice or which are necessary to maintain Interconnection Service, provided, however, that the Generator shall not be obligated under this Agreement to modernize, expand or upgrade the Generator Facilities unless the failure to modernize, expand or upgrade is reasonably likely to have a material adverse effect on the operation of the Transmission System or Interconnection Facilities. 3.6 Equipment Testing Obligations 243 3.6.1 For reliability purposes with respect to the Interconnection Facilities and the Transmission System, Pepco may reasonably request, pursuant to PJM Requirements, or Good Utility Practice, that Generator test, calibrate, verify, or validate the Generating Facilities or its equipment, and Generator shall promptly comply with such a request. Generator shall be responsible for all costs of testing, calibrating, verifying or validating its facilities. 3.6.2 At Pepco's request, Generator shall supply to Pepco at no cost, copies of inspection reports, installation and maintenance documents, test and calibration records, verifications, and validations pursuant to the foregoing Section 3.6.1. Pepco shall supply to Generator, at Generator's request and at no cost to Generator, copies of inspection reports, installation and maintenance documents, test and calibration records, verifications, and validations that Pepco has which are related to the Interconnection Facilities. 3.7 Inspections 3.7.1 Pepco shall, at its expense, have the right to inspect or observe all maintenance activities, equipment tests, installation work, construction work, and modification work to the Generating Facilities. Such access by Pepco shall be exercised in a manner which does not unreasonably interfere with Generator's ongoing business operations, rights and obligations and shall be subject to Generator's safety and security practices. If Pepco observes any deficiencies or defects with respect thereto that might reasonably be expected to adversely affect the Transmission System or the Interconnection Facilities, Pepco shall notify the Generator, and Generator shall immediately make any corrections necessitated by PJM Requirements and Good Utility Practice. Notwithstanding the foregoing in this Section 3.7.1, Pepco shall have no liability whatsoever for any failure to fully or adequately observe any deficiency, it being agreed that Generator shall be fully responsible and liable for all such deficiencies, activities, equipment tests, installation, construction or modification. 3.7.2 Generator shall, at its expense, have the right to inspect or observe all maintenance activities, equipment tests, installation work, construction work, and modification work conducted by Pepco to the Interconnection Facilities. Such access by Generator shall be exercised in a manner which does not unreasonably interfere with Pepco's ongoing business operations, rights and obligations and shall be subject to Pepco's safety and security practices. If Generator observes any deficiencies or defects with respect thereto that might reasonably be expected to adversely affect the Station, Generator shall notify Pepco, and Pepco shall immediately make any corrections necessitated by applicable PJM Requirements and Good Utility Practice. Notwithstanding the foregoing in this 244 Section 3.7.2, Generator shall have no liability whatsoever for any failure to fully or adequately observe any deficiency, it being agreed that Pepco shall be fully responsible and liable for all such deficiencies, activities, equipment tests, installation, construction or modification. 3.8 Information Reporting Obligations 3.8.1 In order to provide Interconnection Service hereunder, Pepco may request, and Generator shall promptly provide, all relevant information, documents, or data regarding the Generating Facilities that would be expected to materially affect the Transmission System, and which is reasonably requested by NERC, MAAC, the PJM Interconnection LLC, the MDPSC, the District of Columbia Public Service Commission and any other state or District of Columbia agency having jurisdiction over Pepco or Generator, the PJM System Operator, or the Transmission Operator, which disclosure shall be subject to Article 6 of this Agreement regarding the disclosure of commercially sensitive information. 3.8.2 Generator shall promptly supply accurate, complete, and reliable information in response to reasonable information requests for real time data and other data from Pepco necessary for operations, maintenance, compliance with PJM Requirements or regulatory requirements, or analysis of the Interconnection Facilities or the Transmission System. Such information may include metered values for MW and MVAR, voltage, current, automatic voltage regulator status, automatic frequency control, dispatch, frequency, breaker status indication, or any other information reasonably required for reliable operation of the Transmission System pursuant to PJM Requirements and Good Utility Practice. At minimum, Generator shall satisfy the telemetry requirements set forth in Schedule H. 3.8.3 Information pertaining to generation operating parameters shall be gathered and electronically transmitted directly to Pepco's energy management system using a mutually acceptable communications protocol. 3.8.4 Generator shall be responsible for the maintenance, and any required replacements or upgrades of the field devices and equipment used to gather information regarding generation operating parameters. 3.8.5 Generator shall Maintain, at its expense, operating telephone links to the PJM Interconnection LLC, PJM System Operator, Pepco and the Transmission Operator, to provide information deemed necessary by them, or as reasonably deemed necessary by Pepco in accordance with PJM Requirements or Good Utility Practice to integrate operation of the Station with the Transmission 245 System, provided, however, that Generator shall not be obligated under this Agreement to modernize, expand or upgrade the Generator's facilities unless the failure to modernize, expand or upgrade is reasonably likely to have a material adverse effect on the operation of the Transmission System. Generator shall use communication links at the Station consisting of the mobile radio low band C frequency and "all call" and "red phone" systems currently located at the Station (or successor systems as may reasonably be required by Pepco) and shall maintain the availability of such systems to operate during abnormal conditions including blackouts. 3.9 Local Services 3.9.1 General (a) The Parties agree that, due to the integration of certain control schemes of the Station and the Transmission System, it is cost effective to provide each other with the services set forth in Sections 3.10 and 3.11 in accordance with the terms and conditions set forth therein. (b) The Parties shall ensure, in accordance with Good Utility Practice, that services provided by one Party to the other Party pursuant to Sections 3.10 and 3.11 shall be available at all times and in the manner and at the prices specified herein. Notwithstanding the foregoing, either Party may change the services, provided that (1) there is no cost to the receiving Party as a result of such change, (2) the quality, reliability and integrity of the replacement services is equivalent to the existing service, and (3) there is otherwise no materially adverse effect on the receiving Party. (c) Neither Party shall terminate any services set forth in Sections 3.10 and 3.11 below that it agrees to provide to the other Party, without the other Party's prior written consent, which consent shall not be unreasonably withheld or delayed, provided, however, if a Party receiving a service under Sections 3.10 or 3.11 no longer needs or desires a particular service, said Party shall notify the other Party and the providing Party shall terminate said services as soon thereafter as practicable. 3.9.2 Temporary Suspension of Local Services (a) The Party providing a service set forth in Sections 3.10 or 3.11 below shall notify and obtain approval, which approval shall not be unreasonably withheld or delayed, from the receiving Party of any scheduled temporary 246 suspension of services at least five (5) business days in advance of such suspension. Such notification shall include an estimated time duration for return to normal conditions. (b) In the event of any unplanned or forced suspension of the services set forth in Sections 3.10 or 3.11, below, the providing Party shall immediately notify the other Party first verbally and then in writing. The providing Party shall use all reasonable efforts to minimize the duration of said suspension. (c) The Parties agree to complete any repairs, modifications or corrections, in accordance with Good Utility Practice, that are necessary to restore to the other Party as soon as reasonably practicable any services set forth in Sections 3.10 or 3.11 below that have been suspended. 3.10 Pepco Provided Services: Schedule F sets forth the local services Pepco shall provide to the Generator pursuant to the terms of this Agreement. Unless otherwise specified in Schedule F, for a period of three (3) years after the Effective Date (the "Initial Period") and subject to Section 3.9 above, Pepco shall provide Generator with the local services set forth in Schedule F at no cost and in consideration of the local services Generator shall provide Pepco in accordance with Section 3.11 below. If Generator desires the continuation of any of the services set forth in Schedule F which are subject to the Initial Period to continue after the Initial Period, upon Generator's written request to Pepco made at least 60 days prior to the expiration of the Initial Period, the Parties shall engage in good faith negotiations to reach mutually agreeable terms and conditions upon which such services will continue, provided, however, that if such agreement is not reached prior to the expiration of the Initial Period, Pepco shall cease to provide services under Section 3.10 at the end of the Initial Period. 3.11 Generator Provided Services. Schedule F sets forth the local services Generator shall provide to Pepco pursuant to the terms of this Agreement. Unless otherwise specified in Schedule F, for the Initial Period and subject to Section 3.9 above, Generator shall provide Pepco with the local services set forth in Schedule F at no cost and in consideration of the local services Pepco shall provide Generator in accordance with Section 3.10 above. If Pepco desires the continuation of any of the services set forth in Schedule F which are subject to the Initial Period to continue after the Initial Period, upon Pepco's written request to Generator made at least 60 days prior to the expiration of the Initial Period, the Parties shall engage in good faith negotiations to reach mutually agreeable terms and conditions upon which such services will continue, provided, however, that if such agreement is not reached prior to the expiration of the Initial Period, Generator shall cease to provide services under Section 3.11 at the end of the Initial Period. 247 3.12 Optional Services: Generator may request that Pepco provide the following services to the Generator, provided, however, that Pepco shall not have any obligation to provide such services unless the Parties have mutually agreed in writing to the price and other terms and conditions of such service: (a) PJM interface and dispatch services through the Pepco control center; (b) use of Pepco's communication services; (c) maintenance of certain auxiliary and communications equipment at the Station; (d) maintenance of high-voltage and medium-voltage equipment such as power transformers and power circuit breakers; (e) maintenance of protective relaying, certain control equipment, such as AGC and MSVC, plant batteries and revenue meters owned by Generator. 3.13 Metering and Telemetering 3.13.1 Generator shall, at Generator's expense: (a) own, Maintain and repair, all Revenue Meters, instrument transformers and appurtenances associated with Revenue Meters, and real time telemetry, (b) conduct meter accuracy and tolerance tests, and (c) prepare all calibration reports required for equipment that measures energy transfers at the Point of Interconnection. All meter accuracy and tolerance testing hereunder shall be in accordance with PJM Requirements and Good Utility Practice and shall be conducted, at Pepco's request, in the presence of Pepco's representative. 3.13.2 Generator shall own and Maintain, at the Generator's expense, equipment for redundant real-time communications and transmission of telemetry, hourly MWh information, and such other information as required by the PJM System Operator or Transmission Operator, or as reasonably required by Pepco in accordance with PJM Requirements and Good Utility Practice. 3.14 Emergency Procedure 3.14.1 Pepco, through the Transmission Operator, shall provide Generator with prompt verbal notification of Emergencies with regard to the Transmission System which may reasonably be expected to affect Generator's 248 immediate operation of the Station or Generator Facilities, and Generator shall provide Pepco with prompt verbal notification of Emergencies with regard to the Station which may reasonably be expected to affect Interconnection Service or the Transmission System. Such notification shall describe the Emergency, the extent of damage or deficiency, the anticipated length of an outage and the corrective action taken and/or to be taken. Said verbal notification shall be followed as soon as practicable (but no later than 24 hours after the verbal notification) with written notification. 3.14.2 If an Emergency in the good faith judgment of a Party endangers or could endanger life or property, the Party recognizing the problem shall take such action as may be reasonable and necessary to prevent, avoid, or mitigate injury, danger, or loss. If however the Emergency involves transmission or electrical equipment, Generator shall notify the Transmission Operator, and obtain the consent of such personnel, prior to performing any switching operations. 3.14.3 Pepco may, consistent with PJM Requirements and Good Utility Practice, have the Transmission System Operator take whatever actions (including tripping Generator's synchronizing breakers) or inactions it deems necessary during an Emergency to: (a) preserve public safety; (b) preserve the integrity of the Transmission System, (c) limit or prevent damage; or (d) expedite restoration of service. If any action or inaction by Pepco or the Transmission Operator under this Section 3.14 results in the discontinuation, curtailment, interruption or reduction of Interconnection Service, Pepco shall use reasonable efforts consistent with PJM Requirements and Good Utility Practice to restore Interconnection Service as promptly as practicable and to minimize the effect of such restoration of service on the Station. 3.15 Interconnection Service Interruptions 3.15.1 If at any time, in the reasonable exercise of the PJM System Operator's judgment, or the Transmission Operator's judgment exercised in accordance with PJM Requirements or Good Utility Practice and on a non-discriminatory basis, a condition exists, including the operation of Generator's equipment, which might reasonably be expected to have a materially adverse affect on the quality of service rendered by Pepco (including services rendered to transmission or distribution customers) or interferes with the safe and reliable operation of the Transmission System, Pepco may discontinue, curtail, reduce and/or interrupt Interconnection Service until the condition has been corrected. 3.15.2 Unless the PJM System Operator, the Transmission Operator or Pepco perceives that an Emergency exists or the risk of one is imminent, Pepco 249 shall give Generator reasonable notice of its intention to discontinue, curtail, interrupt or reduce Interconnection Service in response to the interfering condition and, where practical, allow suitable time for Generator to remove the interfering condition if it is the result of Generator's operations, before the discontinuation, curtailment, interruption or reduction commences. Pepco's judgment with regard to the interruption of service under this paragraph shall be made pursuant to PJM Requirements and Good Utility Practice. In the case of such interruption, Pepco shall immediately confer with Generator regarding the conditions causing such interruption and its recommendation concerning timely correction thereof. In the event Interconnection Service is interrupted under this section due to Generator's failure to operate and Maintain the Generating Facilities pursuant to PJM Requirements or Good Utility Practice, Generator shall compensate Pepco for all costs reasonably incurred by Pepco attributable to the interruption and restoration of Interconnection Service. Pepco shall use reasonable efforts consistent with PJM Requirements and Good Utility Practice to restore Interconnection Service interrupted, curtailed or reduced pursuant to this Section 3.15 as promptly as practicable and to minimize the effect of such restoration of service on the Station. 3.16 Unit Status Notification 3.16.1 Generator acknowledges that Pepco requires information regarding the status of the Station for Transmission System reliability purposes. Accordingly, by 10:00 a.m. of each day, the Generator shall provide Pepco the following information regarding the status of the Station for the following day: Station availability to provide energy and capacity, the Station's scheduled on and off times, Station synchronization, planned outages or deratings, and generation restrictions and limitations. Generator shall immediately notify Pepco of any changes to the information provided pursuant to the foregoing sentence. 3.16.2 In circumstances, such as forced outages, Generator shall notify Pepco of its generating unit's temporary interruption of generation as soon as practicable; and it shall provide Pepco, as soon as practicable, with a schedule of when generation will be resumed. 3.17 Scheduled Maintenance Notification and Coordination 3.17.1 Local Routine Inspection and Maintenance. The Parties agree that, due to the integration of certain control and protective relaying schemes between the Station and the Interconnection Facilities, it will be necessary for them to cooperate in the inspection, maintenance and testing of these areas of integration. Each Party will provide advance notice to the other Party before undertaking any work in these areas, especially in electrical circuits involving circuit breaker trip and 250 close contacts, current transformers or potential transformers and such work will be performed in accordance with PJM Requirements and Good Utility Practice. 3.17.2 Transmission System Maintenance. Pepco shall consult with Generator regarding timing of scheduled maintenance of the Interconnection Facilities or the transmission facilities of the Transmission System which Pepco or the Transmission Operator performs and which might reasonably be expected to affect the Station. Pepco shall, to the extent practicable, schedule any testing, shutdown, or withdrawal of said facilities to coincide with Generator's scheduled outages for the Station. To facilitate such consultation and to the extent the information is not available from the PJM System Operator in a timely manner, in June of each year, or on another date mutually acceptable to the Parties, Generator shall furnish Pepco with non-binding preliminary generator maintenance schedules covering the upcoming two years and any material changes thereto. In the event Pepco is unable to schedule the outage of its facilities to coincide with Generator's schedule, Pepco shall notify Generator as soon as practicable of the reasons for the facilities' outage, of the time scheduled for the outage to take place, and of its expected duration. 3.18 Safety 3.18.1 General. Pepco agrees with respect to the Interconnection Facilities and the Transmission System, and Generator agrees with respect to the Station, that all work performed by either Party on such facilities which could reasonably be expected to affect the operations of the other Party shall be performed in accordance with all applicable PJM Requirements and Good Utility Practice. 3.18.2 Switching Tagging and Grounding . Each Party shall comply with the Switching, Tagging and Grounding Rules. Pepco will notify Generator of any changes in its Switching, Tagging and Grounding Rules. Generator shall be responsible for all switching, tagging and grounding on Generator's side of the Point of Interconnection and, except for Generator Facilities, Pepco shall be responsible for all switching, tagging and grounding on its side of the Point of Interconnection. 3.19 Environmental Compliance and Procedures 3.19.1 Each Party shall be responsible for complying with all Environmental Laws applicable to it with respect to its facilities or property. 251 3.19.2 A Party shall notify the other Party first verbally and then in writing, of any Releases of a Hazardous Substance or any type of remediation activities related thereto as soon as possible but no later than twenty-four (24) hours after the occurrence if within the reasonable judgment of the Party said activities could reasonably be expected to have a material adverse effect upon the operations of the other Party and shall promptly furnish to the other Party copies of any reports filed with any governmental agencies covering such events. This Section 3.19.2 does not effect any allocation of liability with respect to the Station pursuant to the Asset Sale Agreement. 3.19.3 Neither Party shall knowingly take any actions which might reasonably be expected to have a material adverse environmental impact upon the operations of the other Party without prior written notification and agreement between then Parties. 3.20 Operating Committee. The Parties shall establish an operating committee consisting of one representative for each Party ("Operating Committee"). The Operating Committee shall act only by unanimous agreement or consent. The Parties shall designate their respective representatives to the Operating Committee, plus an alternate by written notice. Each Party's representative on the Operating Committee is authorized to act on behalf of such Party with respect to any matter arising under this Agreement which is to be decided by the Operating Committee, however, the Operating Committee shall not have any authority to modify or otherwise alter the rights and obligations of the Parties hereunder. The Operating Committee shall develop and implement suitable policies and procedures with which to coordinate the interaction of the Parties with respect to the performance of their duties and obligations under this Agreement. ARTICLE 4 OPERATIONS 4.1 General 4.1.1 The Parties agree to operate their respective equipment that could reasonably be expected to have a material effect on the operations of the other Party in a safe and efficient manner and in accordance with PJM Requirements and Good Utility Practice, and otherwise in accordance with the terms of this Agreement. 4.1.2 Generator shall comply with the requests, orders, and directives of Pepco with respect to Interconnection Service to the extent such requests, orders 252 or directives are (a) issued pursuant to PJM Requirements or Good Utility Practice, (b) not discriminatory; and (c) otherwise in accordance with this Agreement or applicable tariffs. 4.1.3 In the event Generator believes that a request, order, or directive of Pepco exceeds the limitations in this Section 4.1.2, it shall nevertheless comply with the request, order, or directive pending resolution of the dispute under Article 12. The Parties agree to cooperate in good faith to expedite the resolution of any disputes arising under this Section 4.1. 4.2 Generator's Operating Obligations 4.2.1 General. Generator shall request permission from the Transmission Operator, the PJM System Operator or the PJM Interconnection LLC, as applicable, prior to opening and/or closing circuit breakers in accordance with applicable switching and operations procedures and Good Utility Practice. (a) Generator shall carry out all switching orders from the Transmission Operator, the PJM System Operator, or the PJM Interconnection LLC, in a timely manner and in accordance with PJM Requirements and Good Utility Practice. (b) Generator shall (i) comply with Pepco's system restoration plan and black start criteria applicable to the Station as configured as of the Effective Date or (ii) if the Station's configuration is modified, provide alternative service restoration and black start capability in accordance with PJM Requirements. Generator shall ensure that operating personnel at the Station are trained to implement such system restoration or black start plans. The Generator shall test the Station's black-start combustion-turbines annually to confirm that the black-start combustion-turbines will start without an external power supply. The Generator shall test the Station's steam turbine-generators and those combustion-turbine generators that would be required to be black-started in accordance with Pepco's Emergency Conditions and System Restoration Manual, as revised from time to time, and plant restoration procedures, at least once every three years. Testing shall confirm the ability of a generating unit or Station to go from a shut down condition to an operating condition and start delivering power without assistance from the Transmission System. These testing requirements shall remain in place until PJM promulgates specific rules governing black-start testing. 253 (c) The electricity supplied by Generator to the Point of Interconnection shall be in the form of three-phase 60 Hertz alternating current at the nominal system voltage. (d) Generator's equipment shall conform with Good Utility Practice for harmonic distortion and voltage fluctuation. 4.2.2 Voltage or Reactive Control Requirements. Unless otherwise agreed to by the Parties or authorized or directed by the PJM Interconnection LLC, Generator shall operate the Station with automatic voltage regulators in service at all times. The voltage regulators will control voltage at the Points of Interconnection consistent with the range of voltage prescribed by Pepco or the Transmission System Operator in accordance with PJM Requirements and Good Utility Practice. (a) Generator will operate the Station in accordance with prescribed voltage schedules pursuant to Section 4.2.2 to the extent the Station is operating within its reactive generating capability and not violating any electrical constraints. Should Generator fail to comply with such voltage schedules, Pepco or the Transmission Operator, as applicable, shall provide written notice to the Generator of its intent to remedy that failure. If Generator does not promptly commence appropriate action after receiving such notice, Pepco or the Transmission Operator may then take any necessary action at Generator's expense to remedy such failure, including the installation of capacitor banks or other reactive compensation equipment necessary to ensure the proper voltage or reactive supply at the Station including, at a minimum, by installing such equipment outside any building housing the Generation Facilities. Pepco shall make, to the extent feasible, reasonable efforts to minimize the impact of such action on the operation of the Station. (b) Generator shall notify the Transmission Operator if (a) any or all generating units at the Station reaches a VAR limit, (b) there is any deviation from the voltage schedules prescribed pursuant to Section 4.2.2 which is outside the limits permitted by PJM Requirements or Good Utility Practice, or (c) any automatic voltage regulator is removed from or restored to service. (c) The Transmission Operator may from time to time, pursuant to PJM Requirements or Good Utility Practice, request or direct Generator to adjust generator controls that impact the Transmission System, such as excitation, droop, and automatic generation control settings and Generator shall comply with such request or directions. 254 (d) Generator acknowledges that the Transmission Operator may have the right, to the extent authorized or directed by the PJM Interconnection LLC, to require reduced or increased generation of the Station in accordance with PJM Requirements, or in accordance with applicable rules of the Transmission Operator. 4.3 Auditing of Accounts and Records. The Parties shall have the right, during normal business hours, to audit each other's accounts and records pertaining to transactions under this Agreement, upon twenty (20) days prior written notice, at the offices where such accounts and records are maintained, provided, however, that the audit shall be limited to those portions of the accounts and records that are related to services provided to the other Party under this Agreement. Any such audit of a Party's accounts and records will be at the expense of the auditing Party, shall not be made more frequently than once in any twelve (12) month period, and no such audit may be made with respect to accounts and records relating to periods more than twenty-four (24) months prior to the date of the audit notice. The Party being audited will be entitled to review the audit report and any supporting materials. The Party conducting the audit shall maintain the confidentiality of all information obtained during the audit in compliance with Article 6 of this Agreement. To the extent that audited information includes confidential information, the auditing Party shall designate an independent auditor at its expense to perform such audit. ARTICLE 5 COST RESPONSIBILITIES AND BILLING PROCEDURES 5.1 Cost Responsibilities for Interconnection Service. Except as otherwise expressly stated herein, Generator shall not be responsible for any costs arising from Pepco's provision of Interconnection Service or local services to Generator, except for those costs specified in Sections 3.2.1, 3.2.2, 3.4.1, and 3.15 or arising from the liability or indemnification provisions of this Agreement. 5.2 Cost Responsibilities for Local Services. Except as otherwise expressly provided herein or agreed to by the Parties, each Party shall be responsible for the costs for local services provided to the other Party in Sections 3.10 and 3.11 as set forth in said sections. 5.3 Billing Procedures 255 (a) Within ten (10) days after the first day of each calendar month, each Party shall provide the other Party with a written invoice for any payments due from the other Party for services provided in the previous month. (b) Each invoice shall (i) delineate the month in which the services were provided, (ii) fully describe the services rendered, (iii) be itemized to reflect the services performed or provided, and (iv) provide reasonable detail as to the calculation of the amount involved. (c) All invoices shall be paid within fifteen (15) days after receipt, but not earlier than the 25th day of the month in which the invoice is rendered. All payments shall be made in immediately available funds payable to the other Party, or by wire transfer to a bank designated in writing by such Party. Payment of invoices shall not relieve the paying Party from any responsibilities or obligations it has under this Agreement, nor shall such payment constitute a waiver of any claims arising hereunder. 5.3.2 To the extent that, for any billing period, Generator is obligated to pay to Pepco amounts due and calculated pursuant to Section 5.3, Pepco may use such amounts as a set-off against any amounts owed by Pepco to Generator under this Section 5.3. 5.3.3 Interest on any unpaid amounts shall be calculated in accordance with the methodology specified for interest on refunds in FERC regulations at 18 C.F.R. Section 35.19a(a)(2)(iii). Interest on delinquent amounts shall be calculated from the due date of the bill to the date of payment. When payments are made by mail, bills shall be considered as having been paid on the date of receipt by the other Party. 5.4 Billing Disputes. In the event of a billing dispute between the Parties, each Party shall continue to provide services as long as the other Party continues to make all payments not in dispute. Payment of invoices by either Party shall not relieve the paying Party from any responsibilities or obligations it has under this Agreement; nor shall it constitute a waiver of any claims arising hereunder. ARTICLE 6 CONFIDENTIALITY 6.1 Confidentiality Obligations of Pepco. Pepco shall hold in confidence, unless compelled to disclose by judicial or administrative process or other provisions of law, all documents and information furnished by Generator in 256 connection with this Agreement marked "Confidential" or "Proprietary." Except to the extent that such information or documents are (i) generally available to the public other than as a result of a disclosure by Pepco in breach of this Agreement, (ii) available to Pepco on a non-confidential basis prior to disclosure to Pepco by Generator, or (iii) available to Pepco on a non-confidential basis from a source other than Generator, provided that such source is not known, and by reasonable effort could not be known, by Pepco to be bound by a confidentiality agreement with Generator or otherwise prohibited from transmitting the information to Pepco by a contractual, legal or fiduciary obligation, Pepco shall not release or disclose such information to any other person, except to its employees, representatives or agents on a need-to-know basis, in connection with this Agreement who has not first been advised of the confidentiality provisions of this Section 6.1 and has agreed in writing to comply with such provisions. In no event shall such information be disclosed in violation of the requirements of FERC Orders 889 and 889-A, and any successor thereto. Pepco shall promptly notify Generator if it receives notice or otherwise concludes that the production of any information subject to this Section 6.1 is being sought under any provision of law and Pepco shall use reasonable efforts in cooperation with Generator to seek confidential treatment for such confidential information provided thereto. 6.2 Confidentiality Obligations of Generator. Generator shall hold in confidence, unless compelled to disclose by judicial or administrative process or other provisions of law, all documents and information furnished by Pepco in connection with this Agreement marked "Confidential" or "Proprietary." Except to the extent that such information or documents are (i) generally available to the public other than as a result of a disclosure by Generator in breach of this Agreement, (ii) available to Generator on a non-confidential basis prior to disclosure to Generator by Pepco, or (iii) available to Generator on a non-confidential basis from a source other than Pepco, provided that such source is not known, and by reasonable effort could not be known, by Generator to be bound by a confidentiality agreement with Pepco or otherwise prohibited from transmitting the information to Generator by a contractual, legal or fiduciary obligation, Generator shall not release or disclose such information to any other person, except to its employees, representatives or agents on a need-to-know basis, in connection with this Agreement who has not first been advised of the confidentiality provisions of this Section 6.2 and has agreed in writing to comply with such provisions. In no event shall such information be disclosed in violation of the requirements of FERC Orders 889 and 889-A, and any successor thereto. Generator shall promptly notify Pepco if it receives notice or otherwise concludes that the production of any information subject to this Section 6.2 is being sought under any provision of law and Generator shall use reasonable efforts in cooperation with Pepco to seek confidential treatment for such confidential information provided thereto. 257 6.3 Confidentiality of Audits. The independent auditor performing any audit, as referred to in Section 4.3, shall be subject to a confidentiality agreement between the auditor and the Party being audited. Such audit information shall be treated as confidential except to the extent that its disclosure is required by regulatory or judicial order, for reliability purposes pursuant to PJM Requirements or Good Utility Practice, and pursuant to the FERC's rules and regulations. Except as provided herein, neither Party will disclose the audit information to any third party, without the other Party's prior written consent. Audit information in the hands of the Party not being audited shall be subject to all provisions of Section 6.1 or 6.2, above, as applicable. 6.4 Remedies. The Parties agree that monetary damages would be inadequate to compensate a Party for the other Party's breach of its obligations under Section 6.1 or 6.2, above, as applicable. Each Party accordingly agrees, subject to Article 8, that the other Party shall be entitled to equitable relief, by way of injunction or otherwise, if the first Party breaches or threatens to breach its obligations under Section 6.1 or 6.2 of this Agreement, as applicable, which equitable relief shall be granted without bond or proof of damages, and the receiving Party shall not plead in defense that there would be an adequate remedy at law. ARTICLE 7 EVENTS OF DEFAULT 7.1 Events of Default. Each of the following shall constitute an Event of Default by the a defaulting Party under this Agreement: (a) The failure by a Party to pay any amount due within twenty (20) calendar days after receipt of written notice of nonpayment by the other Party, unless the payment of such amount is disputed in good faith, in which event Section 5.5 shall apply; (b) A Party's breach of any material term or condition of this Agreement, including but not limited to any material breach of a representation, warranty or covenant made in this Agreement which, after receiving written notice of the breach from the non-breaching Party (such notice to set forth in reasonable detail the nature of the default and, where known and if applicable, the steps necessary to cure such default), (i) the breaching Party fails to cure, if curable, within thirty (30) days following receipt of the notice or (ii) if such default is of such a nature that it cannot be cured within thirty (30) days following receipt of such notice, the breaching Party fails within such thirty (30) days to commence the necessary cure and fails at any time thereafter diligently and continuously to 258 prosecute such cure to completion provided that the cure is completed no later than 180 days after the receipt of the default notice; (c) The appointment of a receiver, liquidator or trustee for either Party, and such receiver, liquidator or trustee is not discharged within sixty (60) days; (d) The entry of a decree or decrees adjudicating a Party as bankrupt or insolvent, and such decree or decrees are not stayed or discharged within sixty (60) days; or (e) The filing of voluntary petitions for bankruptcy under any federal or state bankruptcy law by a Party. 7.2 Remedies 7.2.1 If the breaching Party disputes that an Event of Default under Section 7.1.(b) has occurred, the breaching Party shall nonetheless comply with this Section 7.2 pending the resolution of the dispute. If it is determined that no breach or Event of Default under Section 7.1(b) existed, the Party alleging the default shall pay and reimburse the other Party for all reasonable costs and expenses incurred by it to cure the alleged default. 7.2.2 Upon the occurrence of an Event of Default, the non-defaulting Party may (i) exercise all such rights and remedies as may be available to it at law or equity including seeking to recover damages caused by such Event of Default, subject to Article 8 of this Agreement; and/or (ii) terminate this Agreement. The Parties shall not discontinue the performance of any one or more of their obligations hereunder due to the occurrence of an Event of Default during the pendency of any dispute regarding such Event of Default and until such dispute is finally resolved except that Pepco may suspend or interrupt service if necessary for the safe and reliable operation of the Interconnection Facilities or the Transmission System. 7.2.3 Notwithstanding the foregoing, upon the occurrence of any Event of Default, the non-defaulting Party shall be entitled to commence an action to require the defaulting Party to remedy such default by specifically performance of its duties and obligations hereunder in accordance with the terms and conditions hereof. 259 7.2.4 Notwithstanding anything in this Agreement to the contrary, in the event the Generator's failure to comply with the provisions of Sections 4.1 and 4.2 of this Agreement is reasonably likely to have an immediate and material adverse impact on Pepco or the Transmission System, Pepco shall have the right to take immediately reasonable steps and/or to exercise immediately all remedies available under this Agreement, or at law or equity, including the right, after providing as much notice as is practicable under the circumstances and complying with the applicable FERC notice requirements regarding termination of service, to disconnect the Station from the Transmission System. ARTICLE 8 LIMITATION OF LIABILITY 8.1 Limitation of Pepco's Liability. Pepco does not guarantee the non-occurrence of, or warrant against, and will have no liability hereunder for, and the Generator will release Pepco from all claims or damages associated with, any interruption in the availability of the Interconnection Facilities, Interconnection Service or local services pursuant to Section 3.10 or damages to the Generator's facilities, except to the extent such interruption or damage is caused by Pepco's gross negligence or willful misconduct in the performance of its obligations under this Agreement. 8.2 Limitation on Generator's Liability. Generator does not guarantee the non-occurrence of, or warrant against, and will have no liability under this Agreement for, and Pepco will release Generator from all claims or damages arising under this Agreement which are associated with any interruption in the availability of the Station or local services pursuant to Section 3.11, any reduction, curtailment, interruption or reduction of energy from the Station, or damage to Pepco's facilities, except to the extent such interruption or damage is caused by Generator's gross negligence or willful misconduct in the performance of its obligations under the Agreement. 8.3 Consequential Damages. Except for indemnity obligations set forth in Article 9, neither Party, nor their respective officers, directors, agents, employees, Affiliates, or successors or assigns of any of them, shall be liable to the other Party or its Affiliates, officers, directors, agents, employees, successors or assigns for claims, suits, actions or causes of action for incidental, punitive, special, indirect, multiple or consequential damages (including, without limitation, replacement power costs, lost revenues, claims of customers, attorneys' fees and litigation costs) connected with, or resulting from, performance or non-performance of this Agreement, or any actions undertaken in connection with or related to this Agreement, including, without limitation, any such damages which are based upon causes of action for 260 breach of contract, tort (including negligence and misrepresentation), breach of warranty or strict liability. The provisions of this Section 8.3 shall apply regardless of fault and shall survive termination, cancellation, suspension, completion, or expiration of this Agreement. ARTICLE 9 INDEMNIFICATION FOR THIRD PARTY CLAIMS 9.1 Generator's Indemnification. Generator shall indemnify, hold harmless, and defend Pepco and its Affiliates, as the case may be, and their respective officers, directors, employees, agents, contractors, subcontractors, invitees, successors and permitted assigns from and against any and all claims, liabilities, costs, damages, and expenses (including, without limitation, reasonable attorney and expert fees, and disbursements incurred by any of them in any action or proceeding between Pepco and a third party or Generator) for damage to property of unaffiliated third parties, injury to or death of any person, including Pepco's employees or any third parties, to the extent caused, by the negligence or willful misconduct of Generator's and/or its officers, directors, employees, agents, contractors, subcontractors or invitees arising out of or connected with Generator's performance or breach of this Agreement, or the exercise by Generator of its rights hereunder. In furtherance of the foregoing indemnification and not by way of limitation thereof, Generator hereby waives any defense it might otherwise have under applicable workers' compensation laws. 9.2 Pepco's Indemnification. Pepco shall indemnify, hold harmless, and defend Generator and its Affiliates, as the case may be, and their respective officers, directors, employees, agents, contractors, subcontractors, invitees, successors and permitted assigns from and against any and all claims, liabilities, costs, damages, and expenses (including, without limitation, reasonable attorney and expert fees, and disbursements incurred by any of them in any action or proceeding between the Generator and a third party or Pepco) for damage to property of unaffiliated third parties, injury to or death of any person, including Generator's employees or any third parties, to the extent caused by the negligence or willful misconduct of Pepco and/or its officers, directors, employees, agents, contractors, subcontractors or invitees arising out of or connected with Pepco's performance or breach of this Agreement, or the exercise by Pepco of its rights hereunder. In furtherance of the foregoing indemnification and not by way of limitation thereof, Pepco hereby waives any defense it might otherwise have under applicable workers' compensation laws. 9.3 Indemnification Procedures. If either Party intends to seek indemnification under this Article 9 from the other Party, the Party seeking indemnification shall give the other Party notice of such claim within ninety (90) 261 days of the later of the commencement of, or the Party's actual knowledge of, such claim or action. Such notice shall describe the claim in reasonable detail, and shall indicate the amount (estimated if necessary) of the claim that has been, or may be sustained by, said Party. To the extent that the other Party will have been actually and materially prejudiced as a result of the failure to provide such notice, such notice will be a condition precedent to any liability of the other Party under the provisions for indemnification contained in this Agreement. Neither Party may settle or compromise any claim without the prior consent of the other Party; provided, however, said consent shall not be unreasonably withheld or delayed. 9.4 Survival. The indemnification obligations of each Party under this Article 9 shall continue in full force and effect regardless of whether this Agreement has either expired or been terminated or canceled. ARTICLE 10 INSURANCE 10.1 Insurance Coverage. The Parties shall maintain at their own cost and expense, fire, liability, worker's compensation, and other forms of insurance relating to their respective property and facilities subject to this Agreement in the manner, and amounts, and for the durations as is customary in the electric utility industry. 10.2 Certificates of Insurance. The Parties agree to furnish each other with certificates of insurance evidencing the insurance Coverage obtained in accordance with this Article 10, and the Parties agree to notify and send copies to the other of any policies maintained hereunder upon written request by a Party. Each Party must notify the other Party within ten (10) business days of receiving notice of cancellation, change, amendment or renewal of any insurance policy required pursuant to Section 10.1 above. 10.3 Additional Insureds and Waiver. Each Party and its affiliates shall be named as additional insureds on the general liability insurance policies obtained in accordance with Section 10.1, above, as regards liability under this Agreement; and each Party shall waive its rights of recovery against the other for any loss or damage covered by such policy. 262 ARTICLE 11 FORCE MAJEURE 11.1 Effect of Force Majeure. Notwithstanding anything in this Agreement to the contrary, Generator and Pepco shall not be liable in damages or otherwise or responsible to the other for its failure to carry out any of its obligations under this Agreement (except for the obligation to pay sums of money due and owing hereunder) to the extent that they are unable to so perform or are prevented from performing by an event of Force Majeure and has complied with Section 11.3. 11.2 Force Majeure Defined. Force Majeure means those causes beyond the reasonable control of the Party affected, which by the exercise of reasonable diligence, including Good Utility Practice, that Party is unable to prevent, avoid, mitigate, or overcome, including the following: any act of God, labor disturbance (including a strike), act of the public enemy, war, insurrection, riot, fire, storm or flood, explosion, breakage or accident to machinery or equipment, electric system disturbance), order, regulation or restriction imposed by governmental, military or lawfully established civilian authorities, or any other cause of a similar nature beyond a Party's reasonable control. 11.3 Notification. A Party shall not be entitled to rely on the occurrence of an event of Force Majeure as a basis for being excused from performance of its obligations under this Agreement, unless the Party relying on the event or condition shall: (a) provide prompt written notice of such Force Majeure event to the other Party, including an estimation of its expected duration and the probable impact on the performance of its obligations hereunder; (b) exercise all reasonable efforts in accordance with Good Utility Practice to continue to perform its obligations under this Agreement; (c) expeditiously take action to correct or cure the event or condition excusing performance; (d) exercise all reasonable efforts to mitigate or limit damages to the other Party; and (e) provide prompt notice to the other Party of the cessation of the event or condition giving rise to its excuse from performance. Subject to this Section 11.3, any obligation under this Agreement shall be suspended only to the extent caused by such Force Majeure and only during the continuance of any inability of performance caused by such Force Majeure but for no longer period. ARTICLE 12 DISPUTES 12.1 Disputes 263 12.1.1 A Party with a claim or dispute under this Agreement shall submit to the Operating Committee a notification of such claim or dispute within sixty (60) days after the circumstances that gave rise to the claim or the question or issue in dispute. The notification shall be in writing and shall include a concise statement of the claim or the issue or question in dispute, a statement of the relevant facts and documentation to support the claim. In the event the Operating Committee is unable, in good faith, to resolve their disagreement in a manner satisfactory to both Parties within thirty (30) days after receipt by the Operating Committee of a notification specifying the claim, issue or question in dispute, the Parties shall refer the dispute to their respective senior management. If, after using their good faith best efforts to resolve the dispute, senior management cannot resolve the dispute within thirty (30) days, the Parties shall utilize the arbitration procedures set forth below in Section 12.2 to resolve a dispute, provided that nothing herein or therein shall prohibit either Party from at any time requesting from a court of competent jurisdiction a temporary restraining order, preliminary injunction, or other similar form of equitable relief to enforce performance of the provisions of this Agreement. 12.2 Arbitration. (a) Unless the Parties other wise mutually agree in writing to another form of dispute resolution such as dispute resolution under the PJM Agreement or the MAAC agreement, any arbitration initiated under this Agreement shall be conducted before a single neutral arbitrator appointed by the Parties within thirty (30) days of receipt by respondent of the demand for arbitration. If the Parties are unable to agree on an arbitrator, such arbitration shall be appointed by the American Arbitration Association. Unless the Parties agree otherwise, the arbitrator shall be an attorney or retired judge with at least fifteen (15) years of experience, and shall not have any current or past substantial business or financial relationships with any Party to the arbitration. If possible, the arbitrator shall have experience in the electric utility industry. Unless otherwise agreed, the arbitration shall be conducted in accordance with the American Arbitration Association's Commercial Arbitration Rules, then in effect. Any arbitration proceedings, decision or award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act of the United States, 9 U.S.C. Section 1 et seq. The location of any arbitration hereunder shall be in the District of Columbia. (b) The arbitration shall, if possible, be concluded not later than six (6) months after the date that it is initiated. The arbitrator shall be authorized only to interpret and apply the provisions of this Agreement or any related agreements entered into under this Agreement and shall have no power to modify 264 or change any of the above in any manner. The arbitrator shall have no authority to award punitive or multiple damages or any damages inconsistent with this Agreement. The arbitrator shall, within thirty (30) days of the conclusion of the hearing, unless such time is extended by agreement of the Parties, notify the Parties in writing of his or her decision, stating his or her reasons for such decision and separately listing his or her findings of fact and conclusions of law. The decision of the arbitrator rendered in such a proceeding shall be final and binding on the Parties. Judgment on the award may be entered upon it in any court having jurisdiction. 12.3 FERC Dispute Resolution. Nothing in this Agreement shall preclude, or be construed to preclude, any Party from filing a petition or complaint with FERC with respect to any arbitrable claim over which FERC has jurisdiction. In such case, the other Party may request FERC to reject or to waive jurisdiction. If FERC rejects or waives jurisdiction with respect to all or a portion of the claim, the portion of the claim not so accepted by FERC shall be resolved through arbitration, as provided in this Agreement. To the extent that FERC asserts or accepts jurisdiction over the claim, the decision, finding of fact or order of FERC shall be final and binding, subject to judicial review under the Federal Power Act, and any arbitration proceedings that may have commenced with respect to the claim prior to the assertion or acceptance of jurisdiction by FERC shall be terminated. ARTICLE 13 REPRESENTATIONS 13.1 Representations of Pepco. Pepco hereby represents and warrants to Generator as follows: (a) Incorporation. Pepco is a corporation duly organized, validly existing and in good standing under the laws of the District of Columbia and the Commonwealth of Virginia, and has all requisite corporate power and authority to own, lease and operate its material assets and properties and to carry on its business as now being conducted. (b) Authority. Pepco has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery by Pepco of this Agreement and the consummation by Pepco of the transactions contemplated hereunder have been duly and validly authorized by the Board of Directors of Pepco or by a committee thereof to whom such authority has been delegated and no other corporate proceedings on the part of Pepco are necessary to authorize this Agreement or the transactions contemplated hereby. This Agreement has been duly and validly 265 executed and delivered by Pepco and, assuming that this Agreement constitutes a valid and binding agreement of Generator, constitutes a valid and binding agreement of Pepco, enforceable by Pepco in accordance with its terms. (c) Consents and Approvals; No Violation. (i) Neither the execution and delivery of this Agreement by Pepco nor performance by Pepco of its obligations hereunder will (A) conflict with or result in any breach of any provision of the Certificate of Incorporation or By-laws of Pepco, (B) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation to which Pepco or any of its subsidiaries is a party or by which any of their respective assets may be bound or (C) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Pepco, or any of its assets, except in the case of clauses (B) and (C) for such failures to obtain a necessary consent, defaults and violations which would not, individually or in the aggregate, have a material adverse effect on the ability of Pepco to discharge its obligations under this Agreement (a "Pepco Material Adverse Effect"). (ii) No declaration, filing or registration with, or notice to, or authorization, consent or approval of any governmental authority is necessary for performance by Pepco of its obligations hereunder, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made would not, individually or in the aggregate, have a Pepco Material Adverse Effect. 13.2 Representations of Generator. Generator hereby represents and warrants to Pepco as follows: (a) Incorporation. Generator is a [corporation] duly [incorporated], validly existing and in good standing under the laws of the State of __________, and has all requisite [corporate] power and authority to own, lease and operate its material assets and properties and to carry on its business as now being conducted. (b) Authority. Generator has all necessary [corporate] power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery by the Generator of this Agreement and the consummation by Generator of the transactions contemplated hereby have been duly and validly authorized the [Board of Directors] of Generator 266 or by a committee thereof to whom such authority has been delegated and no other [corporate] proceedings on the part of Generator are necessary to authorize this Agreement or the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Generator and, assuming that this Agreement constitutes a valid and binding agreement of Pepco, constitutes a valid and binding agreement of Generator, enforceable against Generator in accordance with its terms. (c) Consents and Approvals. (i) Neither the execution and delivery of this Agreement by Generator nor performance by Generator of its obligations hereunder will (A) conflict with or result in any breach of any provision of the [Certificate of Incorporation or By-laws] of Generator, (B) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation to which Generator or any of its subsidiaries is a party or by which any of their respective assets may be bound or (C) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Generator, or any of its assets, except in the case of clauses (B) and (C) for such failures to obtain a necessary consent, defaults and violations which would not, individually or in the aggregate, have a material adverse effect on the ability of Generator to discharge its obligations under this Agreement (a "Generator Material Adverse Effect"). (ii) No declaration, filing or registration with, or notice to, or authorization, consent or approval of any Governmental Authority is necessary for performance by Generator of its obligations hereunder, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made would not, individually or in the aggregate, have a Generator Material Adverse Effect. ARTICLE 14 ASSIGNMENT/CHANGE IN CORPORATE IDENTITY 14.1 Assignment. (a) Except as set forth in this Article 14, neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned by either Party hereto, without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. 267 (b) Subject to Section 14.2, upon ten (10) days prior written notice to Generator, Pepco may assign this Agreement, and Pepco's rights, interests and obligations hereunder, to (i) an Affiliate of Pepco that owns all or part of Pepco's Transmission System or (ii) an independent system operator or independent transmission company whose control over all or part of Pepco's Transmission System has been approved by the FERC. (c) Subject to Section 14.2, Generator may (a) assign any of its rights and obligations hereunder to an Affiliate to the extent necessary for the Generator to qualify as an exempt wholesale generator under Section 32 of the Public Utility Holding Company Act of 1935, as amended, and (b) assign, transfer, pledge or otherwise dispose of its rights and interests hereunder to a trustee, lending institution, or other Person for the purposes of financing or refinancing the Station, including upon or pursuant to the exercise of remedies under such financing or refinancing, or by way of assignments, transfers, conveyances of dispositions in lieu thereof; provided, however, that no such assignment shall relieve or in any way discharge Generator from the performance of its duties and obligations under this Agreement. Pepco agrees to execute and deliver, at Generator's expense, such documents as may be reasonably necessary to accomplish any such assignment, transfer, conveyance, pledge or disposition of rights hereunder for purposes of the financing or refinancing of the Facility, so long as Pepco's rights under this Agreement are not thereby altered, amended, diminished or otherwise impaired. (d) Subject to Section 14.2, either Party may assign this Agreement to a successor to all or substantially all of the assets of such Party by way of merger, consolidation, sale or otherwise, provided such successor assumes in writing and becomes liable for all of such Party's duties and obligations hereunder. 14.2 Release of Rights and Obligations. No assignment, transfer, conveyance, pledge or disposition of rights, interests, duties or obligations under this Agreement by a Party shall relieve that Party from liability and financial responsibility for the performance thereof after any such transfer, assignment, conveyance, pledge or disposition unless and until (i) the transferee or assignee shall agree in writing to assume the obligations and duties of that Party under this Agreement and to impose such obligations on subsequent permitted transferees and assignees and (ii) the non-assigning Party has consented in writing to such assumption and to a release of the assigning Party from such liability, such consent not to be unreasonably withheld or delayed. 14.3 Change in Corporate Identity. If Generator terminates its existence as a [corporate] entity by merger, acquisition, sale, consolidation or otherwise, or if all or substantially all of Generator's assets are transferred to another person or 268 business entity without complying with this Article 14, Pepco shall have the right, enforceable in a court of competent jurisdiction, to enjoin Generator's successor from using the Station in any manner that does not comply with the requirements of this Agreement or that impedes Pepco's ability to carry on its ongoing business operations. 14.4 Successors and Assigns. This Agreement and all of the provisions hereof are binding upon, and inure to the benefit of, the Parties and their respective successors and permitted assigns. ARTICLE 15 SUBCONTRACTORS Nothing in this Agreement shall prevent the Parties from utilizing the services of subcontractors as they deem appropriate, provided, however, the Parties agree that, where applicable, all said subcontractors shall comply with the terms and conditions of this Agreement. The creation of any subcontract relationship shall not relieve the hiring Party of any of its obligations under this Agreement. Each Party shall be fully responsible to the other Party for the acts and/or omission of any subcontractor it hires as if no subcontract had been made. Any obligation imposed by this Agreement upon the Parties, where applicable, shall be equally binding upon and shall be construed as having application to any subcontractor. The Parties shall each be liable for, indemnify, and hold harmless the other Party, their Affiliates and their officers, directors, employees, agents, servants, and assigns from and against any and all claims, demands, or actions, from the other Party's subcontractors; and shall pay all costs, expenses and legal fees associated therewith and all judgments, decrees and awards rendered therein. No subcontractor is intended to be or shall be deemed a third-party beneficiary of this Agreement. ARTICLE 16 NOTICES 16.1 Emergency Notices. At or prior to the Effective Date, each Party shall indicate to the other Party, by notice, the appropriate person during each eight-hour work shift to contact in the event of an emergency, a scheduled or forced interruption or reduction in services. The notice last received by a Party shall be effective until modified in writing by the other Party. 16.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given (as of the time of delivery or, in the case of a telecopied communication, of confirmation) if delivered personally, telecopied (which is confirmed) or sent by overnight courier (providing proof of delivery) to 269 the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice): if to Pepco, to: Potomac Electric Power Company 1900 Pennsylvania Avenue, N.W. Washington, D.C. 20068 Telecopier: (202) ________________ Attention: ___________________ if to Generator, to: c/o Southern Energy, Inc. 900 Ashwood Parkway Suite 500 Atlanta, Georgia 30338-4780 Telecopier: (770) 821-6575 Attention: ARTICLE 17 AMENDMENTS 17.1 Amendments. Except as set forth in Sections 2.2 and 17.2 of this Agreement, this Agreement may be amended, modified, or supplemented only by written agreement of both Pepco and Generator. 17.2 FERC Proceedings (a) Pepco may unilaterally make application to FERC under Section 205 of the Federal Power Act and pursuant to the FERC's rules and regulations promulgated thereunder for, or exercise any rights it may have under Section 206 of the Federal Power Act and the regulations thereunder with respect to, a change in any rates, terms and conditions, charges, classification of service, rule or regulation for any services Pepco provides under this Agreement over which FERC has jurisdiction. (b) Generator may exercise its rights under Section 205 or 206 of the Federal Power Act and pursuant to FERC's rules and regulations promulgated thereunder with respect to any rate, term, condition, charge, classification of service, rule or regulation for any services provided under this Agreement over which FERC has jurisdiction. 270 ARTICLE 18 MISCELLANEOUS PROVISIONS 18.1 Waiver. Except as otherwise provided in this Agreement, any failure of a Party to comply with any obligation, covenant, agreement, or condition herein may be waived by the Party entitled to the benefits thereof only by a written instrument signed by the Party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement, or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. 18.2 Labor Relations. The Parties agree to immediately notify the other Party, verbally and then in writing, of any labor dispute or anticipated labor dispute which may reasonably be expected to affect the operations of the other Party. 18.3 No Third Party Beneficiaries. Nothing in this Agreement is intended to confer upon any other person except the Parties any rights or remedies hereunder or shall create any third party beneficiary rights in any person. No provision of this Agreement shall create any rights in any such persons in respect of any benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement except as expressly provided for thereunder. 18.4 Governing Law This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland (regardless of the laws that might otherwise govern under applicable principles of conflicts of law). 18.5 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 18.6 Interpretation. When a reference is made in this Agreement to an Article, Section, Schedule or exhibit, such reference shall be to an Article or Section of, or Schedule or exhibit to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation" or equivalent words. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this 271 Agreement as a whole and not to any particular provision of this Agreement. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Unless otherwise expressly stated otherwise herein, the word "day" shall mean any calendar day including weekends and holidays. Any agreement, instrument, statute, regulation, rule or order defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument, statute, regulation, rule or order as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes, regulations, rules or orders) by succession of comparable successor statutes, regulations, rules or orders and references to all attachments thereto and instruments incorporated therein. References to a person are also to its permitted successors and assigns. Each Party acknowledges that it has been represented by counsel in connection with the review and execution of this Agreement, and, accordingly, there shall be no presumption that this Agreement or any provision hereof be construed against the Party that drafted this Agreement. 18.7 Jurisdiction and Enforcement. Each of the Parties irrevocably submits to the exclusive jurisdiction of the federal and state courts of the State of Maryland for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each of the Parties agrees to commence any action, suit or proceeding relating hereto either in the federal courts of the State of Maryland or, if such suit, action or proceeding may not be brought in such court for jurisdictional reasons, in the state courts of the State of Maryland. Each of the Parties further agrees that service of process, summons, notice or document by hand delivery or U.S. registered mail at the address specified for such Party in Section 16.2 (or such other address specified by such Party from time to time pursuant to Section 16.2) shall be effective service of process for any action, suit or proceeding brought against such Party in any such court. Each of the Parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in the federal and state courts of the State of Maryland and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 18.8 Entire Agreement. This Agreement, Asset Sale Agreement, the Confidentiality Agreement and the Ancillary Agreements including the Exhibits, Schedules, documents, certificates and instruments referred to herein or therein and other contracts, agreements and instruments contemplated hereby or thereby, embody the entire agreement and understanding of the Parties in respect of the 272 transactions contemplated by this Agreement. There are no restrictions, promises, representations, warranties, covenants or undertakings other than those expressly set forth or referred to herein or therein. This Agreement, the Asset Sale Agreement and the Ancillary Agreements supersede all prior agreements and understandings between the Parties with respect to the transactions contemplated by this Agreement other than the Confidentiality Agreement. 18.9 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. 18.10 Independent Contractor Status. Nothing in this Agreement shall be construed as creating any relationship between Pepco and Generator other than that of independent contractors. 18.11 Conflicts. Except with respect to the amendments, indemnification, liability, default and remedies provisions contained herein or as otherwise expressly provided herein, in the event of any conflict or inconsistency between the terms of this Agreement and the terms of the Asset Sale Agreement, the terms of the Asset Sale Agreement shall prevail. 273 IN WITNESS WHEREOF, Pepco and Generator have caused this Interconnection Agreement (Morgantown) to be signed by their respective duly authorized officers as of the date first above written. POTOMAC ELECTRIC POWER COMPANY By: -------------------------------- Name: Title: [GENERATOR] By: -------------------------------- Name: Title: 274 SCHEDULE A DEFINITIONS Part A. Capitalized terms not defined in the body of the Agreement shall have the meaning set forth in Part A of this Schedule A. (Part B of this Schedule A sets forth capitalized terms defined within the Agreement.) (1) "Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. (2) "Ancillary Agreements" has the meaning set forth in the Asset Sale Agreement. (3) "Closing" has the meaning set forth in the Asset Sale Agreement. (4) "Confidentiality Agreement" has the meaning set forth in the Asset Sale Agreement. (5) "Costs" means all costs, including without limitation, any Taxes, costs of acquiring real property, costs and fees for permits, franchises, licenses and regulatory approvals except to the extent that such costs are allocated to a party or parties other than the Generator by the PJM Interconnection LLC or otherwise under the PJM Tariff or PJM Agreement. (6) "Easement" means the Easement Agreement dated __________, 2000, between the Parties with respect to the Station. (7) "Environmental Laws" means all former, current and future federal, state, local and foreign laws (including common law), treaties, regulations, rules, ordinances, codes, decrees, judgments, directives or orders (including consent orders) and environmental permits, in each case, relating to pollution or protection of the environment or natural resources, including laws relating to Releases or threatened Releases, or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, arrangement for disposal, transport, recycling or handling, of Hazardous Substances. (8) "Emergency" means (a) with respect to Pepco, a condition or situation which Pepco, the PJM Interconnection LLC, the PJM System Operator or the Transmission Operator deem imminently likely to (i) endanger life or property, or (ii) adversely affect or impair the Transmission System, Pepco's electrical system or the electrical or transmission systems of others to which the Transmission System or Pepco's electrical system are directly or indirectly connected and (b) with respect to the Generator, a condition or situation which the Generator deems imminently likely to (i) endanger life or property, or (ii) adversely affect or impair the Station. (9) "FERC" means the Federal Energy Regulatory Commission or its successors. 275 (10) "Generating Facilities" means the Station and any additional generating plants, turbines or other generating facilities constructed by Generator after the Effective Date at the site of the Station. (11) "Generator" has the meaning set forth in the introductory paragraph of this Agreement and shall include its permitted successors and assigns. (12) "Generator Facilities" mean the equipment and facilities owned by the Generator but located on Pepco's property which are identified in Schedule B of this Agreement. (13) "Good Utility Practice" means any of the applicable practices, methods and acts. (a) required by FERC, NERC, MAAC, the PJM Interconnection LLC, the PJM System Operator, or the successor of any of them, whether or not the Party whose conduct is at issue is a member thereof, (b) required by applicable law or regulations, (c) required by the Pepco Interconnection Standards or the policies and standards of Pepco relating to emergency operations; (d) otherwise engaged in or approved by a significant portion of the electric utility industry during the relevant time period; which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with law, regulation, good business practices, reliability, safety, and expedition. Good Utility Practice is not intended to be limited to the optimum practice, method, or act to the exclusion of all others, but rather to be acceptable practices, methods, or acts generally accepted in the region. (14) "Hazardous Substances" means (i) any petrochemical or petroleum products, crude oil or any fraction thereof, ash, radioactive materials, radon gas, asbestos in any form, urea formaldehyde foam insulation or polychlorinated biphenyls, (ii) any chemicals, materials, substances or wastes defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "restricted hazardous materials," "extremely hazardous substances," "toxic substances," "contaminants" or "pollutants" or words of similar meaning and regulatory effect contained in any Environmental Law or (iii) any other chemical, material, substance or waste which is prohibited, limited or regulated by any Environmental Law. (15) "Interconnection Facilities" means those facilities or portions of facilities owned or operated by Pepco to provide Interconnection Service which shall include, but not be limited to (1) facilities the cost of which is reasonably allocated to the Interconnection Service provided to the Station, or (2) Attachment Facilities or Local Upgrade Facilities, as defined in the PJM Tariff, which are associated with the Interconnection Service and operated and maintained by Pepco. 276 (16) "Interconnection Service" means the services provided by Pepco which are necessary to connect the Station to the Transmission System for parallel operation of the Station and to enable Generator to transmit the energy and ancillary services produced by the Station to the Transmission System and receive Station energy service and ancillary services, including blackstart power, from the Generator's supplier. (17) "MAAC" means the Mid-Atlantic Area Council, a reliability council under Section 202 of the Federal Power Act established pursuant to the MAAC Agreement dated August 1, 1994, or any successor thereto. (18) "Maintain" means construct, reconstruct, install, inspect, repair, replace, operate, patrol, maintain, use, modernize, expand, upgrade, or other similar activities. (19) "MDPSC" means the Maryland Public Service Commission or any successor agency thereto. (20) "NERC" means North American Electric Reliability Council or any successor thereto. (21) "Pepco" has the meaning set forth in the introductory paragraph of this Agreement and shall include its permitted successors or assigns. (22) "Pepco Facilities" means the equipment and facilities owned by Pepco but located on Generator's property which are identified in Schedule B of this Agreement. (23) "Pepco Interconnection Standards" means Pepco's Interconnection and Parallel Operating Guidelines as amended, modified or replaced from time to time. A copy of the existing Pepco Interconnection Standards is attached hereto as Schedule E. (24) "Point of Interconnection" means each ownership point of demarcation set forth in Schedule C where capacity, energy and ancillary services are transferred between the Station and the Transmission System. (25) "Pepco Transmission Facilities" means those transmission, substation, and communication facilities and related equipment, including the Interconnection Facilities, and any additions, modifications or replacements thereto, that are utilized to provide Interconnection Service to the Station. (26) "PJM" means the Pennsylvania New Jersey-Maryland interconnected power pool operated under the PJM Agreement and any successor thereto including any regional transmission operator, independent system operator, transco, or any other independent system administrator that possesses operational or planning control over the Transmission System. (27) "PJM Agreement" means the Amended and Restated Operating Agreement of the PJM Interconnection LLC dated as of June 2, 1997. 277 (28) "PJM Control Area" shall mean the control area recognized by NERC as the PJM Control Area. (29) "PJM Interconnection LLC" means the independent system operator of the PJM Control Area pursuant to the PJM Operating Agreement and the PJM Tariff. (30) "PJM Generator Connection Agreement" means the interconnection agreement entered into between the Generator and the PJM Interconnection LLC pursuant to the PJM Tariff with respect to the interconnection of the Station and the Transmission System. (31) "PJM Reliability Agreement" means the Reliability Assurance Agreement dated June 2, 1997 among the load serving entities of PJM. (32) "PJM Requirements" means the rules, regulations or other requirements of PJM or MAAC contained in or adopted pursuant to the PJM Agreement, the PJM Tariff or the PJM Reliability Agreement which are applicable to Pepco, with respect to the Transmission System or the Interconnection Service, and the Generator with respect to the Generating Facilities. (33) "PJM System Operator" shall mean the PJM Interconnection LLC, energy control center staff responsible for central dispatch as provided in the PJM Agreement. (34) "PJM Tariff" means the PJM Open Access Transmission Tariff providing transmission service within the PJM Control Area. (35) "Qualified Personnel" means individuals who possess any required licenses and are trained for their positions and duties by Generator and/or Pepco pursuant to Good Utility Practice. (36) "Release" means any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture. (37) "Revenue Meters" means all MWh and MVArh meters, pulse isolation relays, pulse conversion relays, transducers required by Pepco or the PJM Interconnection or PJM System Operator for billing or other purposes, and associated totalizing equipment and appurtenances and compensation required to measure the transfer of energy across the Point of Interconnection. (38) "Station" means the Morgantown Station as defined in the Asset Sale Agreement. (39) "Switching, Tagging, and Grounding Rules" means Pepco's switching, tagging and grounding rules as amended, modified or replace from time to time. A copy of the existing Switching, Tagging and Grounding Rules is attached hereto as Schedule D. 278 (40) "Taxes" means all taxes, surtaxes, charges, fees, levies, penalties or other assessments imposed by any United States federal, state, local or foreign taxing authority, including income taxes, excise, property, sales, transfer, franchise, special franchise, payroll, recording, withholding, social security or other taxes, in each case including any interest, penalties or additions attributable thereto. (41) "Transmission System" means the facilities owned, controlled, or operated by Pepco, for purposes of providing transmission service, including services under the PJM Tariff, and Interconnection Service. (42) "Transmission Operator" means the person, or persons designated by Pepco to coordinate the day to day interconnection of the Station with the Transmission System. Part B. The following terms have the meaning specified in the section of this Agreement set forth opposite to such term:
Term Agreement Reference Agreement Preamble Asset Sale Agreement Preamble Effective Date Section 2.1 Event of Default Section 8.1 Force Majeure Section 11.1 Initial Period Section 3.10 Operating Committee Section 3.20 Party or Parties Preamble Term Article 2
279 EXHIBIT E-3 INTERCONNECTION AGREEMENT (Dickerson) By and Between POTOMAC ELECTRIC POWER COMPANY and ----------------------------------- Dated ____________, 2000 280 INTERCONNECTION AGREEMENT TABLE OF CONTENTS ARTICLE 1 - DEFINITIONS 1 ARTICLE 2 - TERM AND TERMINATION 2 2.1 Term 2 2.2 Change in Law 2 2.3 Effect after Termination 2 ARTICLE 3 - CONTINUING OBLIGATIONS AND RESPONSIBILITIES 2 3.1 Interconnection Service 2 3.2 New Construction or Modifications 3 3.2.1 Pepco Construction or Modifications 3 3.2.2 Generator Construction or Modifications 4 3.2.3 Modifications Affecting the Transmission System or the Station 6 3.3 Access, Easements, Conveyances, Licenses, and Restrictions 6 3.4 Facility and Equipment Maintenance 7 3.5 Pepco Facilities and Generator Facilities 8 3.6 Equipment Testing Obligations 8 3.7 Inspections 8 3.8 Information Reporting Obligations 9 3.9 Local Services 10 3.9.1 General 10 3.9.2 Temporary Suspension of Local Services 11 3.10 Pepco Provided Services 11 3.11 Generator Provided Services 12 3.12 Optional Services 12 3.13 Metering and Telemetering 13 3.14 Emergency Procedure 13 3.15 Interconnection Service Interruptions 14 3.16 Unit Status Notification 15 3.17 Scheduled Maintenance Notification and Coordination 15 3.17.1 Local Routine Inspection and Maintenance 15 3.17.2 Transmission Sytem Maintenance 15 3.18 Safety 16 3.18.1 General 16 3.18.2 Switching Tagging and Grounding 16 3.19 Environmental Compliance and Procedures 16 3.20 Operating Committee 17 ARTICLE 4 - OPERATIONS 17 4.1 General 17 4.2 Generator's Operating Obligations 18 4.2.1 General 18 4.2.2 Voltage or Reactive Control Requirements 18
281 4.3 Auditing of Accounts and Records 19 ARTICLE 5 - COST RESPONSIBILITIES AND BILLING PROCEDURES 20 5.1 Cost Responsibilities for Interconnection Service 20 5.2 Cost Responsibilities for Local Services 20 5.3 Billing Procedures 20 5.4 Billing Disputes 21 ARTICLE 6 - CONFIDENTIALITY 21 6.1 Confidentiality Obligations of Pepco 21 6.2 Confidentiality Obligations of Generator 22 6.3 Confidentiality of Audits 22 6.4 Remedies 23 ARTICLE 7 - EVENTS OF DEFAULT 23 7.1 Events of Default 23 7.2 Remedies 24 ARTICLE 8 - LIMITATION OF LIABILITY 25 8.1 Limitation of Pepco's Liability 25 8.2 Limitation on Generator's Liability 25 8.3 Consequential Damages 25 ARTICLE 9 - INDEMNIFICATION FOR THIRD PARTY CLAIMS 26 9.1 Generator's Indemnification 26 9.2 Pepco's Indemnification 26 9.3 Indemnification Procedures 26 9.4 Survival 27 ARTICLE 10 - INSURANCE 27 10.1 Insurance Coverage 27 10.2 Certificates of Insurance 27 10.3 Additional Insureds and Waiver 27 ARTICLE 11 - FORCE MAJEURE 28 11.1 Effect of Force Majeure 28 11.2 Force Majeure Defined 28 11.3 Notification 28 ARTICLE 12 - DISPUTES 29 12.1 Disputes 29 12.2 Arbitration 29 12.3 FERC Dispute Resolution 30 ARTICLE 13 - REPRESENTATIONS 30 13.1 Representations of Pepco 30 13.2 Representations of Generator 31 ARTICLE 14 - ASSIGNMENT/CHANGE IN CORPORATE IDENTITY 33 14.1 Assignment 33 14.2 Release of Rights and Obligations 33 14.3 Change in Corporate Identity 34 14.4 Successors and Assigns 34
282 ARTICLE 15 - SUBCONTRACTORS 34 ARTICLE 16 - NOTICES 35 16.1 Emergency Notices 35 16.2 Notices 35 ARTICLE 17 - AMENDMENTS 35 17.1 Amendments 35 17.2 FERC Proceedings 36 ARTICLE 18 - MISCELLANEOUS PROVISIONS 36 18.1 Waiver 36 18.2 Labor Relations 36 18.3 No Third Party Beneficiaries 36 18.4 Governing Law 37 18.5 Counterparts 37 18.6 Interpretation 37 18.7 Jurisdiction and Enforcement 37 18.8 Entire Agreement 38 18.9 Severability 38 18.10 Independent Contractor Status 38 18.11 Conflicts 39 SCHEDULE A DEFINITIONS 2 SCHEDULE B Pepco Facilities and Generator Facilities 7 SCHEDULE C - Points of Interconnection 9 SCHEDULE D - Switching, Tagging and Grounding Rules 11 SCHEDULE E - Pepco's Interconnection Standards 14 SCHEDULE F - Local Services 15 SCHEDULE G - Pepco Current Projects 17 SCHEDULE H - Real Time Telemetry List 18
283 INTERCONNECTION AGREEMENT (Dickerson) This Interconnection Agreement ("Agreement") dated as of _________, 2000 by and between Potomac Electric Power Company ("Pepco") a District of Columbia and Virginia corporation, and _____________ ("Generator") a ___________ [corporation]. Pepco and Generator are each referred to herein as a "Party," and collectively referred to herein as the "Parties." WITNESSETH: WHEREAS, Pepco, and Generator have entered into an Asset Purchase and Sale Agreement for Generating and Related Assets ("Asset Sale Agreement") dated June 7, 2000, for the sale by Pepco to Generator of certain assets comprising the Dickerson electric generation station; WHEREAS, Pepco intends to continue to operate its transmission and distribution businesses from their present locations; WHEREAS, Generator needs Interconnection Service from Pepco for the Dickerson electric generating station; WHEREAS, Pepco needs access to parts of the Generator's assets, and Generator needs access to parts of the Pepco's assets; and WHEREAS, the Parties have agreed in the Asset Sale Agreement to execute this Agreement in order to provide Interconnection Service to Generator and to define continuing responsibilities and obligations of the Parties with respect to the use of the other Party's property, assets and facilities as set forth herein. NOW THEREFORE, in consideration of the mutual representations, covenants and agreements hereinafter set forth, and intending to be legally bound hereby, the Parties hereto agree as follows: ARTICLE 1 DEFINITIONS Capitalized terms used in this Agreement shall have the meanings specified or referred to in Schedule A. 284 ARTICLE 2 TERM AND TERMINATION 2.1 Term. This Agreement shall become effective upon consummation of the Closing ("Effective Date"), and unless terminated sooner in accordance with the terms of this Agreement, shall continue in full force and effect until the earlier to occur of (i) the permanent cessation by the Generator of the power generation functions of the Station or (ii) the permanent cessation of the interconnection functions of the Transmission System. 2.2 Change in Law. If (a) the FERC, any state or state regulatory commission or the PJM Interconnection LLC implements a change in any law, regulation, rule or practice, or (b) Pepco's compliance with a change in any law or regulation, which compliance, in either case, affects, or may reasonably be expected to affect, Pepco's performance under this Agreement, the Parties shall negotiate in good faith any amendments to this Agreement that are necessary to adapt the terms of this Agreement to such change, and Pepco shall file such amendments with the FERC. If the Parties are unable to reach agreement on such amendments, either Party shall have the right to make a unilateral filing with the FERC to modify this Agreement pursuant to Sections 205 or 206 or any other applicable provision of the Federal Power Act and the FERC rules and regulations thereunder; provided that the other Party shall have the right to oppose such filing and to participate fully in any proceeding established by the FERC to address such amendments. 2.3 Effect after Termination. The applicable provisions of this Agreement shall continue in effect after cancellation or termination hereof to the extent necessary to provide for final billings, billing adjustments and payments pertaining to liability and indemnification obligations arising from acts or events that occurred while this Agreement was in effect. ARTICLE 3 CONTINUING OBLIGATIONS AND RESPONSIBILITIES 3.1 Interconnection Service 3.1.1 Subject to the terms and conditions of the Agreement, Pepco shall (a) permit the Station to continue to be interconnected to the Transmission System at the Point of Interconnection, and (b) provide Interconnection Service at the Point of Interconnection. Pepco agrees to permit Generator to interconnect 285 Station as long as Generator continues to operate such facilities pursuant to PJM Requirements and Good Utility Practice. 3.1.2 Interconnection Service shall not include, and Pepco shall not be responsible under this Agreement for (a) transmission service, losses or ancillary services associated with the use of the Transmission System for the delivery of capacity, energy and/or ancillary services produced by the Generating Facilities, or (b) providing or procuring capacity, energy and/or ancillary services to the Generator or the Generating Facilities. 3.1.3 The Generator's interconnection to the Transmission System of any new or expanded generating capacity of the Station shall (a) be subject to PJM Requirements and/or FERC requirements governing interconnections and (b) require a separate interconnection agreement mutually agreed to by the Parties in writing. 3.1.4 Notwithstanding anything to the contrary in this Agreement, Pepco's performance of its obligations under this Agreement shall be subject to Generator entering into, and complying with, any PJM Generator Connection Agreement which may be required pursuant to PJM Requirements with respect to Interconnection Service or the Station. 3.2 New Construction or Modifications 3.2.1 Pepco Construction or Modifications (a) Pepco shall make such additions, modifications, replacements and improvements to the Interconnection Facilities as are required by PJM Requirements or Good Utility Practice to enable Pepco to provide Interconnection Service in compliance with this Agreement. Generator shall pay all reasonable Costs incurred by Pepco for such additions, modifications, replacements or improvements. (b) Except with respect to operation and maintenance or ordinary maintenance done in the ordinary course of business or to respond to abnormal or emergency conditions, if any additions, modifications, replacements or improvements to the Interconnection Facilities undertaken by Pepco might reasonably be expected to affect Generator's operation of the Station, Pepco shall provide one hundred twenty (120) days written notice to Generator prior to undertaking such additions, modifications, replacements or improvements. Any such additions, modifications, replacements or improvements shall comply with PJM Requirements and Good Utility Practice. The Parties shall mutually agree to the 286 scheduling of such addition, modification, replacement or improvement to minimize any adverse impact on the Station. Generator shall be deemed to have accepted Pepco's proposed additions, modifications, replacements or improvements unless Generator gives Pepco written notice of its objections within thirty (30) days after receipt of Pepco's notice. Generator's acceptance or deemed acceptance of Pepco's proposed additions, modifications, replacements or improvements shall not be construed, with respect thereto, as: (i) confirmation or endorsement of the design; (ii) a warranty of safety, durability or reliability; or (iii) responsibility for strength, details of design, adequacy or capability. 3.2.2 Generator Construction or Modifications (a) In the event Generator plans to increase the capacity of the Generating Facilities, Generator shall submit to Pepco any and all plans and specifications that Pepco may reasonably request related to such increase. Such specifications and plans shall be submitted by Generator to Pepco at the time that Generator submits its plans under the PJM Tariff related to such expansion but no later than one hundred twenty (120) days prior to commencing such proposed increase. Any such additions, modifications, or replacements shall comply with PJM Requirements and Good Utility Practice and shall be subject to Section 3.1.3 of this Agreement. (b) If Generator plans any additions, modifications, or replacements to the Station that will not increase its capacity, but could reasonably be expected to affect the Transmission System or the Interconnection Facilities, Generator shall give Pepco reasonable notice, but not less than one hundred twenty (120) days prior written notice and Generator shall comply with all applicable PJM Requirements with respect to such proposed additions, modifications, or replacements. All such additions, modifications, or replacements shall (i) comply with PJM Requirements and Good Utility Practice, (ii) be accompanied by appropriate information and operating instructions, and (iii) be subject to the review and acceptance of Pepco, which review shall be based on PJM Requirements and Good Utility Practice and which acceptance shall not unreasonably be withheld or delayed. Pepco shall be deemed to have accepted Generator's proposed additions, modifications or replacements unless Pepco gives Generator written notice of its objections within thirty (30) days after receipt of the Generator's notice. (c) Pepco's acceptance of Generator's plans and specifications for any proposed additions, modifications, or replacements to the Generating Facilities and Pepco's participation in any interconnected operations with Generator are not and shall not be construed as: (i) confirmation or endorsement of the design of the Generating Facilities; (ii) a warranty of safety, durability or reliability of the 287 Generating Facilities; or (iii) responsibility for strength, details of design, adequacy, or capability of the Generating Facilities. (d) Pepco, pursuant to PJM Requirements, shall inform Generator of any additions, modifications, or replacements to the Transmission System or Interconnection Facilities, that will be necessary as a result of the addition, modification, or replacement to Station made pursuant to Section 3.2.2. Generator shall compensate Pepco for all reasonable Costs it incurs associated with any modifications, additions, or replacements made to the Interconnection Facilities or Transmission System related to any additions, modifications, or replacements to the Generating Facilities. Pepco shall provide an estimate as early as practicable, but in any event not less than sixty (60) days prior to the initiation of such addition, modification or replacement. (e) Generator shall modify, at its sole cost and expense, the Generating Facilities as may be reasonably required to conform with PJM Requirements and Good Utility Practice or to conform with additions, modifications, or replacements of the Transmission System or the Interconnection Facilities, required by PJM Requirements and Good Utility Practice or implemented in accordance with this Agreement, (including, without limitation, changes to the voltages at which the Transmission System is operated) provided, however, that Generator shall not be obligated under this Agreement to modernize, expand or upgrade the Generating Facilities unless the failure to modernize, expand or upgrade is reasonably likely to have a material adverse effect on the operation of Pepco's Facilities. (f) Upon completion of any addition, modification, or replacement to the Generating Facilities that may reasonably be expected to affect the Transmission System or the Interconnection Facilities, but no later than ninety (90) days thereafter, Generator shall issue "as built" drawings to Pepco. Upon completion of any addition, modification, or replacement to the Interconnection Facilities, that may reasonably be expected to affect the operation of the Station, but no later than ninety (90) days thereafter, Pepco shall issue "as built" drawings to the Generator. 3.2.3 Modifications Affecting the Transmission System or the Station (a) Notwithstanding anything herein to the contrary, except with respect to the projects or construction set forth in Schedule G, no modifications to or new construction of facilities, or access thereto, including but not limited to rights of way, fences, gates, shall be made by either Party which might reasonably be expected to adversely affect the other Party with respect to such Party's obligations 288 and responsibilities under this Agreement, without prior written notification as set forth in Section 3.2.3(b) below, and without providing the other Party with sufficient information regarding the work prior to commencement to enable such Party to evaluate the impact of the proposed work on its operations. For all modifications reasonably expected to adversely affect the operations of the other Party's facilities, the Party shall provide at least one hundred twenty (120) days written notice to the other Party prior to undertaking such additions, modifications or replacements. Any such additions, modifications, or replacements shall comply with PJM Requirements and Good Utility Practice. (b) The Parties shall mutually agree to the scheduling of such addition, modification, replacement or improvement proposed pursuant to Section 3.2.3(a) to minimize any adverse impact on the Station or the Transmission System. For all construction work, major modifications, or circuit changes involving new or existing facilities, equipment, systems or circuits that could reasonably be expected to affect the operation of either Party, the Party desiring to perform said work shall provide the other Party with drawings, plans, specifications, and other necessary documentation for review at least sixty (60) days prior to the beginning of construction provided that for routine telecommunication work, the Party doing the work shall only be required to provide 48 hours prior notice. The Party shall be deemed to have accepted the proposed additions, modifications, replacements or improvements unless the Party gives written notice of their objections within sixty (60) days after receipt of such notice. The Party's acceptance or deemed acceptance of the proposed additions, modifications, replacements or improvements shall not be construed, with respect thereto, as: (i) confirmation or endorsement of the design; (ii) a warranty of safety, durability or reliability; or (iii) responsibility for strength, details of design, adequacy or capability. 3.3 Access, Easements, Conveyances, Licenses, and Restrictions 3.3.1 The Parties hereby grant to each other such licenses, access and other rights to the Station and the Interconnection Facilities as may be necessary for either Party's performance of their respective obligations under this Agreement. Such access shall be provided in a manner so as not to unreasonably interfere with the ongoing business operations, rights, and obligations of the other Party and shall be subject to the safety and security practices of the Party granting such access. Access shall only be granted to Qualified Personnel. 3.3.2 A Party shall not restrict a Party's rights hereunder to access the other Party's property, facilities, or equipment without prior written notification except in an Emergency, in which case the restricted access shall last no longer than three (3) days, unless an alternate means of access is provided. 289 3.3.3 The Parties' rights with respect to access to their respective facilities properties shall also be governed by the Easement. 3.4 Facility and Equipment Maintenance 3.4.1 Pepco shall provide Interconnection Service at the Point of Interconnection in a safe and efficient manner and pursuant to PJM Requirements and Good Utility Practice. Generator shall be responsible for all reasonable Costs incurred by Pepco to provide Interconnection Service and to Maintain the Interconnection Facilities pursuant to the Agreement. 3.4.2 Generator shall Maintain the Generating Facilities (including coordination of its relay protection equipment) in a safe and efficient manner and as required by and in accordance with PJM Requirements and Good Utility Practice, provided, however, that Generator shall not be obligated to modernize, expand or upgrade the Generating Facilities unless the failure to modernize, expand or upgrade is reasonably likely to have a material adverse affect on the operation of the Interconnection Facilities or the Transmission System. 3.4.3 Unless otherwise specified herein, or unless the Parties mutually agree to a different arrangement, neither Party shall be responsible for the maintenance of the other Party's equipment or property regardless of its location. 3.4.4 In addition to the requirements set forth elsewhere in this Agreement, each Party shall Maintain its equipment and facilities and perform its maintenance obligations that could reasonably be expected to affect the operations of the other Party in a safe and efficient manner and pursuant to PJM Requirements and Good Utility Practice. 3.5 Pepco Facilities and Generator Facilities Unless otherwise agreed to by the Parties, the Party owning Pepco Facilities or Generator Facilities shall Maintain those facilities and shall do so pursuant to PJM Requirements and Good Utility Practice and shall make such additions, modifications, replacements and improvements as are required by PJM requirements and Good Utility Practice or which are necessary to maintain Interconnection Service, provided, however, that the Generator shall not be obligated under this Agreement to modernize, expand or upgrade the Generator Facilities unless the failure to modernize, expand or upgrade is reasonably likely to have a material adverse effect on the operation of the Transmission System or Interconnection Facilities. 3.6 Equipment Testing Obligations 290 3.6.1 For reliability purposes with respect to the Interconnection Facilities and the Transmission System, Pepco may reasonably request, pursuant to PJM Requirements, or Good Utility Practice, that Generator test, calibrate, verify, or validate the Generating Facilities or its equipment, and Generator shall promptly comply with such a request. Generator shall be responsible for all costs of testing, calibrating, verifying or validating its facilities. 3.6.2 At Pepco's request, Generator shall supply to Pepco at no cost, copies of inspection reports, installation and maintenance documents, test and calibration records, verifications, and validations pursuant to the foregoing Section 3.6.1. Pepco shall supply to Generator, at Generator's request and at no cost to Generator, copies of inspection reports, installation and maintenance documents, test and calibration records, verifications, and validations that Pepco has which are related to the Interconnection Facilities. 3.7 Inspections 3.7.1 Pepco shall, at its expense, have the right to inspect or observe all maintenance activities, equipment tests, installation work, construction work, and modification work to the Generating Facilities. Such access by Pepco shall be exercised in a manner which does not unreasonably interfere with Generator's ongoing business operations, rights and obligations and shall be subject to Generator's safety and security practices. If Pepco observes any deficiencies or defects with respect thereto that might reasonably be expected to adversely affect the Transmission System or the Interconnection Facilities, Pepco shall notify the Generator, and Generator shall immediately make any corrections necessitated by PJM Requirements and Good Utility Practice. Notwithstanding the foregoing in this Section 3.7.1, Pepco shall have no liability whatsoever for any failure to fully or adequately observe any deficiency, it being agreed that Generator shall be fully responsible and liable for all such deficiencies, activities, equipment tests, installation, construction or modification. 3.7.2 Generator shall, at its expense, have the right to inspect or observe all maintenance activities, equipment tests, installation work, construction work, and modification work conducted by Pepco to the Interconnection Facilities. Such access by Generator shall be exercised in a manner which does not unreasonably interfere with Pepco's ongoing business operations, rights and obligations and shall be subject to Pepco's safety and security practices. If Generator observes any deficiencies or defects with respect thereto that might reasonably be expected to adversely affect the Station, Generator shall notify Pepco, and Pepco shall immediately make any corrections necessitated by applicable PJM Requirements and Good Utility Practice. Notwithstanding the foregoing in this 291 Section 3.7.2, Generator shall have no liability whatsoever for any failure to fully or adequately observe any deficiency, it being agreed that Pepco shall be fully responsible and liable for all such deficiencies, activities, equipment tests, installation, construction or modification. 3.8 Information Reporting Obligations 3.8.1 In order to provide Interconnection Service hereunder, Pepco may request, and Generator shall promptly provide, all relevant information, documents, or data regarding the Generating Facilities that would be expected to materially affect the Transmission System, and which is reasonably requested by NERC, MAAC, the PJM Interconnection LLC, the MDPSC, the District of Columbia Public Service Commission and any other state or District of Columbia agency having jurisdiction over Pepco or Generator, the PJM System Operator, or the Transmission Operator, which disclosure shall be subject to Article 6 of this Agreement regarding the disclosure of commercially sensitive information. 3.8.2 Generator shall promptly supply accurate, complete, and reliable information in response to reasonable information requests for real time data and other data from Pepco necessary for operations, maintenance, compliance with PJM Requirements or regulatory requirements, or analysis of the Interconnection Facilities or the Transmission System. Such information may include metered values for MW and MVAR, voltage, current, automatic voltage regulator status, automatic frequency control, dispatch, frequency, breaker status indication, or any other information reasonably required for reliable operation of the Transmission System pursuant to PJM Requirements and Good Utility Practice. At minimum, Generator shall satisfy the telemetry requirements set forth in Schedule H. 3.8.3 Information pertaining to generation operating parameters shall be gathered and electronically transmitted directly to Pepco's energy management system using a mutually acceptable communications protocol. 3.8.4 Generator shall be responsible for the maintenance, and any required replacements or upgrades of the field devices and equipment used to gather information regarding generation operating parameters. 3.8.5 Generator shall Maintain, at its expense, operating telephone links to the PJM Interconnection LLC, PJM System Operator, Pepco and the Transmission Operator, to provide information deemed necessary by them, or as reasonably deemed necessary by Pepco in accordance with PJM Requirements or Good Utility Practice to integrate operation of the Station with the Transmission 292 System, provided, however, that Generator shall not be obligated under this Agreement to modernize, expand or upgrade the Generator's facilities unless the failure to modernize, expand or upgrade is reasonably likely to have a material adverse effect on the operation of the Transmission System. Generator shall use communication links at the Station consisting of the mobile radio low band C frequency and "all call" and "red phone" systems currently located at the Station (or successor systems as may reasonably be required by Pepco) and shall maintain the availability of such systems to operate during abnormal conditions including blackouts. 3.9 Local Services 3.9.1 General (a) The Parties agree that, due to the integration of certain control schemes of the Station and the Transmission System, it is cost effective to provide each other with the services set forth in Sections 3.10 and 3.11 in accordance with the terms and conditions set forth therein. (b) The Parties shall ensure, in accordance with Good Utility Practice, that services provided by one Party to the other Party pursuant to Sections 3.10 and 3.11 shall be available at all times and in the manner and at the prices specified herein. Notwithstanding the foregoing, either Party may change the services, provided that (1) there is no cost to the receiving Party as a result of such change, (2) the quality, reliability and integrity of the replacement services is equivalent to the existing service, and (3) there is otherwise no materially adverse effect on the receiving Party. (c) Neither Party shall terminate any services set forth in Sections 3.10 and 3.11 below that it agrees to provide to the other Party, without the other Party's prior written consent, which consent shall not be unreasonably withheld or delayed, provided, however, if a Party receiving a service under Sections 3.10 or 3.11 no longer needs or desires a particular service, said Party shall notify the other Party and the providing Party shall terminate said services as soon thereafter as practicable. 3.9.2 Temporary Suspension of Local Services (a) The Party providing a service set forth in Sections 3.10 or 3.11 below shall notify and obtain approval, which approval shall not be unreasonably withheld or delayed, from the receiving Party of any scheduled temporary 293 suspension of services at least five (5) business days in advance of such suspension. Such notification shall include an estimated time duration for a return to normal conditions. (b) In the event of any unplanned or forced suspension of the services set forth in Sections 3.10 or 3.11, below, the providing Party shall immediately notify the other Party first verbally and then in writing. The providing Party shall use all reasonable efforts to minimize the duration of said suspension. (c) The Parties agree to complete any repairs, modifications or corrections, in accordance with Good Utility Practice, that are necessary to restore to the other Party as soon as reasonably practicable any services set forth in Sections 3.10 or 3.11 below that have been suspended. 3.10 Pepco Provided Services: Schedule F sets forth the local services Pepco shall provide to the Generator pursuant to the terms of this Agreement. Unless otherwise specified in Schedule F, for a period of three (3) years after the Effective Date (the "Initial Period") and subject to Section 3.9 above, Pepco shall provide Generator with the local services set forth in Schedule F at no cost and in consideration of the local services Generator shall provide Pepco in accordance with Section 3.11 below. If Generator desires the continuation of any of the services set forth in Schedule F which are subject to the Initial Period to continue after the Initial Period, upon Generator's written request to Pepco made at least 60 days prior to the expiration of the Initial Period, the Parties shall engage in good faith negotiations to reach mutually agreeable terms and conditions upon which such services will continue, provided, however, that if such agreement is not reached prior to the expiration of the Initial Period, Pepco shall cease to provide services under Section 3.10 at the end of the Initial Period. 3.11 Generator Provided Services. Schedule F sets forth the local services Generator shall provide to Pepco pursuant to the terms of this Agreement. Unless otherwise specified in Schedule F, for the Initial Period and subject to Section 3.9 above, Generator shall provide Pepco with the local services set forth in Schedule F at no cost and in consideration of the local services Pepco shall provide Generator in accordance with Section 3.10 above. If Pepco desires the continuation of any of the services set forth in Schedule F which are subject to the Initial Period to continue after the Initial Period, upon Pepco's written request to Generator made at least 60 days prior to the expiration of the Initial Period, the Parties shall engage in good faith negotiations to reach mutually agreeable terms and conditions upon which such services will continue, provided, however, that if such agreement is not reached prior to the expiration of the Initial Period, Generator shall cease to provide services under Section 3.11 at the end of the Initial Period. 294 3.12 Optional Services: Generator may request that Pepco provide the following services to the Generator, provided, however, that Pepco shall not have any obligation to provide such services unless the Parties have mutually agreed in writing to the price and other terms and conditions of such service: (a) PJM interface and dispatch services through the Pepco control center; (b) use of Pepco's communication services; (c) maintenance of certain auxiliary and communications equipment at the Station; (d) maintenance of high-voltage and medium-voltage equipment such as power transformers and power circuit breakers; (e) maintenance of protective relaying, certain control equipment, such as AGC and MSVC, plant batteries and revenue meters owned by Generator. 3.13 Metering and Telemetering 3.13.1 Generator shall, at Generator's expense: (a) own, Maintain and repair, all Revenue Meters, instrument transformers and appurtenances associated with Revenue Meters, and real time telemetry, (b) conduct meter accuracy and tolerance tests, and (c) prepare all calibration reports required for equipment that measures energy transfers at the Point of Interconnection. All meter accuracy and tolerance testing hereunder shall be in accordance with PJM Requirements and Good Utility Practice and shall be conducted, at Pepco's request, in the presence of Pepco's representative. 3.13.2 Generator shall own and Maintain, at the Generator's expense, equipment for redundant real-time communications and transmission of telemetry, hourly MWh information, and such other information as required by the PJM System Operator or Transmission Operator, or as reasonably required by Pepco in accordance with PJM Requirements and Good Utility Practice. 3.14 Emergency Procedure 3.14.1 Pepco, through the Transmission Operator, shall provide Generator with prompt verbal notification of Emergencies with regard to the Transmission System which may reasonably be expected to affect Generator's 295 immediate operation of the Station or Generator Facilities, and Generator shall provide Pepco with prompt verbal notification of Emergencies with regard to the Station which may reasonably be expected to affect Interconnection Service or the Transmission System. Such notification shall describe the Emergency, the extent of damage or deficiency, the anticipated length of an outage and the corrective action taken and/or to be taken. Said verbal notification shall be followed as soon as practicable (but no later than 24 hours after the verbal notification) with written notification. 3.14.2 If an Emergency in the good faith judgment of a Party endangers or could endanger life or property, the Party recognizing the problem shall take such action as may be reasonable and necessary to prevent, avoid, or mitigate injury, danger, or loss. If however the Emergency involves transmission or electrical equipment, Generator shall notify the Transmission Operator, and obtain the consent of such personnel, prior to performing any switching operations. 3.14.3 Pepco may, consistent with PJM Requirements and Good Utility Practice, have the Transmission System Operator take whatever actions (including tripping Generator's synchronizing breakers) or inactions it deems necessary during an Emergency to: (a) preserve public safety; (b) preserve the integrity of the Transmission System, (c) limit or prevent damage; or (d) expedite restoration of service. If any action or inaction by Pepco or the Transmission Operator under this Section 3.14 results in the discontinuation, curtailment, interruption or reduction of Interconnection Service, Pepco shall use reasonable efforts consistent with PJM Requirements and Good Utility Practice to restore Interconnection Service as promptly as practicable and to minimize the effect of such restoration of service on the Station. 3.15 Interconnection Service Interruptions 3.15.1 If at any time, in the reasonable exercise of the PJM System Operator's judgment, or the Transmission Operator's judgment exercised in accordance with PJM Requirements or Good Utility Practice and on a non-discriminatory basis, a condition exists, including the operation of Generator's equipment, which might reasonably be expected to have a materially adverse affect on the quality of service rendered by Pepco (including services rendered to transmission or distribution customers) or interferes with the safe and reliable operation of the Transmission System, Pepco may discontinue, curtail, reduce and/or interrupt Interconnection Service until the condition has been corrected. 3.15.2 Unless the PJM System Operator, the Transmission Operator or Pepco perceives that an Emergency exists or the risk of one is imminent, Pepco 296 shall give Generator reasonable notice of its intention to discontinue, curtail, interrupt or reduce Interconnection Service in response to the interfering condition and, where practical, allow suitable time for Generator to remove the interfering condition if it is the result of Generator's operations, before the discontinuation, curtailment, interruption or reduction commences. Pepco's judgment with regard to the interruption of service under this paragraph shall be made pursuant to PJM Requirements and Good Utility Practice. In the case of such interruption, Pepco shall immediately confer with Generator regarding the conditions causing such interruption and its recommendation concerning timely correction thereof. In the event Interconnection Service is interrupted under this section due to Generator's failure to operate and Maintain the Generating Facilities pursuant to PJM Requirements or Good Utility Practice, Generator shall compensate Pepco for all costs reasonably incurred by Pepco attributable to the interruption and restoration of Interconnection Service. Pepco shall use reasonable efforts consistent with PJM Requirements and Good Utility Practice to restore Interconnection Service interrupted, curtailed or reduced pursuant to this Section 3.15 as promptly as practicable and to minimize the effect of such restoration of service on the Station. 3.16 Unit Status Notification 3.16.1 Generator acknowledges that Pepco requires information regarding the status of the Station for Transmission System reliability purposes. Accordingly, by 10:00 a.m. of each day, the Generator shall provide Pepco the following information regarding the status of the Station for the following day: Station availability to provide energy and capacity, the Station's scheduled on and off times, Station synchronization, planned outages or deratings, and generation restrictions and limitations. Generator shall immediately notify Pepco of any changes to the information provided pursuant to the foregoing sentence. 3.16.2 In circumstances, such as forced outages, Generator shall notify Pepco of its generating unit's temporary interruption of generation as soon as practicable; and it shall provide Pepco, as soon as practicable, with a schedule of when generation will be resumed. 3.17 Scheduled Maintenance Notification and Coordination 3.17.1 Local Routine Inspection and Maintenance. The Parties agree that, due to the integration of certain control and protective relaying schemes between the Station and the Interconnection Facilities, it will be necessary for them to cooperate in the inspection, maintenance and testing of these areas of integration. Each Party will provide advance notice to the other Party before undertaking any work in these areas, especially in electrical circuits involving circuit breaker trip and 297 close contacts, current transformers or potential transformers and such work will be performed in accordance with PJM Requirements and Good Utility Practice. 3.17.2 Transmission System Maintenance. Pepco shall consult with Generator regarding timing of scheduled maintenance of the Interconnection Facilities or the transmission facilities of the Transmission System which Pepco or the Transmission Operator performs and which might reasonably be expected to affect the Station. Pepco shall, to the extent practicable, schedule any testing, shutdown, or withdrawal of said facilities to coincide with Generator's scheduled outages for the Station. To facilitate such consultation and to the extent the information is not available from the PJM System Operator in a timely manner, in June of each year, or on another date mutually acceptable to the Parties, Generator shall furnish Pepco with non-binding preliminary generator maintenance schedules covering the upcoming two years and any material changes thereto. In the event Pepco is unable to schedule the outage of its facilities to coincide with Generator's schedule, Pepco shall notify Generator as soon as practicable of the reasons for the facilities' outage, of the time scheduled for the outage to take place, and of its expected duration. 3.18 Safety 3.18.1 General. Pepco agrees with respect to the Interconnection Facilities and the Transmission System, and Generator agrees with respect to the Station, that all work performed by either Party on such facilities which could reasonably be expected to affect the operations of the other Party shall be performed in accordance with all applicable PJM Requirements and Good Utility Practice. 3.18.2 Switching Tagging and Grounding . Each Party shall comply with the Switching, Tagging and Grounding Rules. Pepco will notify Generator of any changes in its Switching, Tagging and Grounding Rules. Generator shall be responsible for all switching, tagging and grounding on Generator's side of the Point of Interconnection and, except for Generator Facilities, Pepco shall be responsible for all switching, tagging and grounding on its side of the Point of Interconnection. 3.19 Environmental Compliance and Procedures 3.19.1 Each Party shall be responsible for complying with all Environmental Laws applicable to it with respect to its facilities or property. 298 3.19.2 A Party shall notify the other Party first verbally and then in writing, of any Releases of a Hazardous Substance or any type of remediation activities related thereto as soon as possible but no later than twenty-four (24) hours after the occurrence if within the reasonable judgment of the Party said activities could reasonably be expected to have a material adverse effect upon the operations of the other Party and shall promptly furnish to the other Party copies of any reports filed with any governmental agencies covering such events. This Section 3.19.2 does not effect any allocation of liability with respect to the Station pursuant to the Asset Sale Agreement. 3.19.3 Neither Party shall knowingly take any actions which might reasonably be expected to have a material adverse environmental impact upon the operations of the other Party without prior written notification and agreement between then Parties. 3.20 Operating Committee. The Parties shall establish an operating committee consisting of one representative for each Party ("Operating Committee"). The Operating Committee shall act only by unanimous agreement or consent. The Parties shall designate their respective representatives to the Operating Committee, plus an alternate by written notice. Each Party's representative on the Operating Committee is authorized to act on behalf of such Party with respect to any matter arising under this Agreement which is to be decided by the Operating Committee, however, the Operating Committee shall not have any authority to modify or otherwise alter the rights and obligations of the Parties hereunder. The Operating Committee shall develop and implement suitable policies and procedures with which to coordinate the interaction of the Parties with respect to the performance of their duties and obligations under this Agreement. ARTICLE 4 OPERATIONS 4.1 General 4.1.1 The Parties agree to operate their respective equipment that could reasonably be expected to have a material effect on the operations of the other Party in a safe and efficient manner and in accordance with PJM Requirements and Good Utility Practice, and otherwise in accordance with the terms of this Agreement. 4.1.2 Generator shall comply with the requests, orders, and directives of Pepco with respect to Interconnection Service to the extent such requests, orders 299 or directives are (a) issued pursuant to PJM Requirements or Good Utility Practice, (b) not discriminatory; and (c) otherwise in accordance with this Agreement or applicable tariffs. 4.1.3 In the event Generator believes that a request, order, or directive of Pepco exceeds the limitations in this Section 4.1.2, it shall nevertheless comply with the request, order, or directive pending resolution of the dispute under Article 12. The Parties agree to cooperate in good faith to expedite the resolution of any disputes arising under this Section 4.1. 4.2 Generator's Operating Obligations 4.2.1 General. Generator shall request permission from the Transmission Operator, the PJM System Operator or the PJM Interconnection LLC, as applicable, prior to opening and/or closing circuit breakers in accordance with applicable switching and operations procedures and Good Utility Practice. (a) Generator shall carry out all switching orders from the Transmission Operator, the PJM System Operator, or the PJM Interconnection LLC, in a timely manner and in accordance with PJM Requirements and Good Utility Practice. (b) Generator shall (i) comply with Pepco's system restoration plan and black start criteria applicable to the Station as configured as of the Effective Date or (ii) if the Station's configuration is modified, provide alternative service restoration and black start capability in accordance with PJM Requirements. Generator shall ensure that operating personnel at the Station are trained to implement such system restoration or black start plans. The Generator shall test the Station's black-start combustion-turbines annually to confirm that the black-start combustion-turbines will start without an external power supply. The Generator shall test the Station's steam turbine-generators and those combustion-turbine generators that would be required to be black-started in accordance with Pepco's Emergency Conditions and System Restoration Manual, as revised from time to time, and plant restoration procedures, at least once every three years. Testing shall confirm the ability of a generating unit or Station to go from a shut down condition to an operating condition and start delivering power without assistance from the Transmission System. These testing requirements shall remain in place until PJM promulgates specific rules governing black-start testing. 300 (c) The electricity supplied by Generator to the Point of Interconnection shall be in the form of three-phase 60 Hertz alternating current at the nominal system voltage. (d) Generator's equipment shall conform with Good Utility Practice for harmonic distortion and voltage fluctuation. 4.2.2 Voltage or Reactive Control Requirements. Unless otherwise agreed to by the Parties or authorized or directed by the PJM Interconnection LLC, Generator shall operate the Station with automatic voltage regulators in service at all times. The voltage regulators will control voltage at the Points of Interconnection consistent with the range of voltage prescribed by Pepco or the Transmission System Operator in accordance with PJM Requirements and Good Utility Practice. (a) Generator will operate the Station in accordance with prescribed voltage schedules pursuant to Section 4.2.2 to the extent the Station is operating within its reactive generating capability and not violating any electrical constraints. Should Generator fail to comply with such voltage schedules, Pepco or the Transmission Operator, as applicable, shall provide written notice to the Generator of its intent to remedy that failure. If Generator does not promptly commence appropriate action after receiving such notice, Pepco or the Transmission Operator may then take any necessary action at Generator's expense to remedy such failure, including the installation of capacitor banks or other reactive compensation equipment necessary to ensure the proper voltage or reactive supply at the Station including, at a minimum, by installing such equipment outside any building housing the Generation Facilities. Pepco shall make, to the extent feasible, reasonable efforts to minimize the impact of such action on the operation of the Station. (b) Generator shall notify the Transmission Operator if (a) any or all generating units at the Station reaches a VAR limit, (b) there is any deviation from the voltage schedules prescribed pursuant to Section 4.2.2 which is outside the limits permitted by PJM Requirements or Good Utility Practice, or (c) any automatic voltage regulator is removed from or restored to service. (c) The Transmission Operator may from time to time, pursuant to PJM Requirements or Good Utility Practice, request or direct Generator to adjust generator controls that impact the Transmission System, such as excitation, droop, and automatic generation control settings and Generator shall comply with such request or directions. 301 (d) Generator acknowledges that the Transmission Operator may have the right, to the extent authorized or directed by the PJM Interconnection LLC, to require reduced or increased generation of the Station in accordance with PJM Requirements, or in accordance with applicable rules of the Transmission Operator. 4.3 Auditing of Accounts and Records. The Parties shall have the right, during normal business hours, to audit each other's accounts and records pertaining to transactions under this Agreement, upon twenty (20) days prior written notice, at the offices where such accounts and records are maintained, provided, however, that the audit shall be limited to those portions of the accounts and records that are related to services provided to the other Party under this Agreement. Any such audit of a Party's accounts and records will be at the expense of the auditing Party, shall not be made more frequently than once in any twelve (12) month period, and no such audit may be made with respect to accounts and records relating to periods more than twenty-four (24) months prior to the date of the audit notice. The Party being audited will be entitled to review the audit report and any supporting materials. The Party conducting the audit shall maintain the confidentiality of all information obtained during the audit in compliance with Article 6 of this Agreement. To the extent that audited information includes confidential information, the auditing Party shall designate an independent auditor at its expense to perform such audit. ARTICLE 5 COST RESPONSIBILITIES AND BILLING PROCEDURES 5.1 Cost Responsibilities for Interconnection Service. Except as otherwise expressly stated herein, Generator shall not be responsible for any costs arising from Pepco's provision of Interconnection Service or local services to Generator, except for those costs specified in Sections 3.2.1, 3.2.2, 3.4.1, and 3.15 or arising from the liability or indemnification provisions of this Agreement. 5.2 Cost Responsibilities for Local Services. Except as otherwise expressly provided herein or agreed to by the Parties, each Party shall be responsible for the costs for local services provided to the other Party in Sections 3.10 and 3.11 as set forth in said sections. 5.3 Billing Procedures 302 (a) Within ten (10) days after the first day of each calendar month, each Party shall provide the other Party with a written invoice for any payments due from the other Party for services provided in the previous month. (b) Each invoice shall (i) delineate the month in which the services were provided, (ii) fully describe the services rendered, (iii) be itemized to reflect the services performed or provided, and (iv) provide reasonable detail as to the calculation of the amount involved. (c) All invoices shall be paid within fifteen (15) days after receipt, but not earlier than the 25th day of the month in which the invoice is rendered. All payments shall be made in immediately available funds payable to the other Party, or by wire transfer to a bank designated in writing by such Party. Payment of invoices shall not relieve the paying Party from any responsibilities or obligations it has under this Agreement, nor shall such payment constitute a waiver of any claims arising hereunder. 5.3.2 To the extent that, for any billing period, Generator is obligated to pay to Pepco amounts due and calculated pursuant to Section 5.3, Pepco may use such amounts as a set-off against any amounts owed by Pepco to Generator under this Section 5.3. 5.3.3 Interest on any unpaid amounts shall be calculated in accordance with the methodology specified for interest on refunds in FERC regulations at 18 C.F.R. Section 35.19a(a)(2)(iii). Interest on delinquent amounts shall be calculated from the due date of the bill to the date of payment. When payments are made by mail, bills shall be considered as having been paid on the date of receipt by the other Party. 5.4 Billing Disputes. In the event of a billing dispute between the Parties, each Party shall continue to provide services as long as the other Party continues to make all payments not in dispute. Payment of invoices by either Party shall not relieve the paying Party from any responsibilities or obligations it has under this Agreement; nor shall it constitute a waiver of any claims arising hereunder. ARTICLE 6 CONFIDENTIALITY 6.1 Confidentiality Obligations of Pepco. Pepco shall hold in confidence, unless compelled to disclose by judicial or administrative process or other provisions of law, all documents and information furnished by Generator in 303 connection with this Agreement marked "Confidential" or "Proprietary." Except to the extent that such information or documents are (i) generally available to the public other than as a result of a disclosure by Pepco in breach of this Agreement, (ii) available to Pepco on a non-confidential basis prior to disclosure to Pepco by Generator, or (iii) available to Pepco on a non-confidential basis from a source other than Generator, provided that such source is not known, and by reasonable effort could not be known, by Pepco to be bound by a confidentiality agreement with Generator or otherwise prohibited from transmitting the information to Pepco by a contractual, legal or fiduciary obligation, Pepco shall not release or disclose such information to any other person, except to its employees, representatives or agents on a need-to-know basis, in connection with this Agreement who has not first been advised of the confidentiality provisions of this Section 6.1 and has agreed in writing to comply with such provisions. In no event shall such information be disclosed in violation of the requirements of FERC Orders 889 and 889-A, and any successor thereto. Pepco shall promptly notify Generator if it receives notice or otherwise concludes that the production of any information subject to this Section 6.1 is being sought under any provision of law and Pepco shall use reasonable efforts in cooperation with Generator to seek confidential treatment for such confidential information provided thereto. 6.2 Confidentiality Obligations of Generator. Generator shall hold in confidence, unless compelled to disclose by judicial or administrative process or other provisions of law, all documents and information furnished by Pepco in connection with this Agreement marked "Confidential" or "Proprietary." Except to the extent that such information or documents are (i) generally available to the public other than as a result of a disclosure by Generator in breach of this Agreement, (ii) available to Generator on a non-confidential basis prior to disclosure to Generator by Pepco, or (iii) available to Generator on a non-confidential basis from a source other than Pepco, provided that such source is not known, and by reasonable effort could not be known, by Generator to be bound by a confidentiality agreement with Pepco or otherwise prohibited from transmitting the information to Generator by a contractual, legal or fiduciary obligation, Generator shall not release or disclose such information to any other person, except to its employees, representatives or agents on a need-to-know basis, in connection with this Agreement who has not first been advised of the confidentiality provisions of this Section 6.2 and has agreed in writing to comply with such provisions. In no event shall such information be disclosed in violation of the requirements of FERC Orders 889 and 889-A, and any successor thereto. Generator shall promptly notify Pepco if it receives notice or otherwise concludes that the production of any information subject to this Section 6.2 is being sought under any provision of law and Generator shall use reasonable efforts in cooperation with Pepco to seek confidential treatment for such confidential information provided thereto. 304 6.3 Confidentiality of Audits. The independent auditor performing any audit, as referred to in Section 4.3, shall be subject to a confidentiality agreement between the auditor and the Party being audited. Such audit information shall be treated as confidential except to the extent that its disclosure is required by regulatory or judicial order, for reliability purposes pursuant to PJM Requirements or Good Utility Practice, and pursuant to the FERC's rules and regulations. Except as provided herein, neither Party will disclose the audit information to any third party, without the other Party's prior written consent. Audit information in the hands of the Party not being audited shall be subject to all provisions of Section 6.1 or 6.2, above, as applicable. 6.4 Remedies. The Parties agree that monetary damages would be inadequate to compensate a Party for the other Party's breach of its obligations under Section 6.1 or 6.2, above, as applicable. Each Party accordingly agrees, subject to Article 8, that the other Party shall be entitled to equitable relief, by way of injunction or otherwise, if the first Party breaches or threatens to breach its obligations under Section 6.1 or 6.2 of this Agreement, as applicable, which equitable relief shall be granted without bond or proof of damages, and the receiving Party shall not plead in defense that there would be an adequate remedy at law. ARTICLE 7 EVENTS OF DEFAULT 7.1 Events of Default. Each of the following shall constitute an Event of Default by the a defaulting Party under this Agreement: (a) The failure by a Party to pay any amount due within twenty (20) calendar days after receipt of written notice of nonpayment by the other Party, unless the payment of such amount is disputed in good faith, in which event Section 5.5 shall apply; (b) A Party's breach of any material term or condition of this Agreement, including but not limited to any material breach of a representation, warranty or covenant made in this Agreement which, after receiving written notice of the breach from the non-breaching Party (such notice to set forth in reasonable detail the nature of the default and, where known and if applicable, the steps necessary to cure such default), (i) the breaching Party fails to cure, if curable, within thirty (30) days following receipt of the notice or (ii) if such default is of such a nature that it cannot be cured within thirty (30) days following receipt of such notice, the breaching Party fails within such thirty (30) days to commence the necessary cure and fails at any time thereafter diligently and continuously to 305 prosecute such cure to completion provided that the cure is completed no later than 180 days after the receipt of the default notice; (c) The appointment of a receiver, liquidator or trustee for either Party, and such receiver, liquidator or trustee is not discharged within sixty (60) days; (d) The entry of a decree or decrees adjudicating a Party as bankrupt or insolvent, and such decree or decrees are not stayed or discharged within sixty (60) days; or (e) The filing of voluntary petitions for bankruptcy under any federal or state bankruptcy law by a Party. 7.2 Remedies 7.2.1 If the breaching Party disputes that an Event of Default under Section 7.1.(b) has occurred, the breaching Party shall nonetheless comply with this Section 7.2 pending the resolution of the dispute. If it is determined that no breach or Event of Default under Section 7.1(b) existed, the Party alleging the default shall pay and reimburse the other Party for all reasonable costs and expenses incurred by it to cure the alleged default. 7.2.2 Upon the occurrence of an Event of Default, the non-defaulting Party may (i) exercise all such rights and remedies as may be available to it at law or equity including seeking to recover damages caused by such Event of Default, subject to Article 8 of this Agreement; and/or (ii) terminate this Agreement. The Parties shall not discontinue the performance of any one or more of their obligations hereunder due to the occurrence of an Event of Default during the pendency of any dispute regarding such Event of Default and until such dispute is finally resolved except that Pepco may suspend or interrupt service if necessary for the safe and reliable operation of the Interconnection Facilities or the Transmission System. 7.2.3 Notwithstanding the foregoing, upon the occurrence of any Event of Default, the non-defaulting Party shall be entitled to commence an action to require the defaulting Party to remedy such default by specifically performance of its duties and obligations hereunder in accordance with the terms and conditions hereof. 306 7.2.4 Notwithstanding anything in this Agreement to the contrary, in the event the Generator's failure to comply with the provisions of Sections 4.1 and 4.2 of this Agreement is reasonably likely to have an immediate and material adverse impact on Pepco or the Transmission System, Pepco shall have the right to take immediately reasonable steps and/or to exercise immediately all remedies available under this Agreement, or at law or equity, including the right, after providing as much notice as is practicable under the circumstances and complying with the applicable FERC notice requirements regarding termination of service, to disconnect the Station from the Transmission System. ARTICLE 8 LIMITATION OF LIABILITY 8.1 Limitation of Pepco's Liability. Pepco does not guarantee the non-occurrence of, or warrant against, and will have no liability hereunder for, and the Generator will release Pepco from all claims or damages associated with, any interruption in the availability of the Interconnection Facilities, Interconnection Service or local services pursuant to Section 3.10 or damages to the Generator's facilities, except to the extent such interruption or damage is caused by Pepco's gross negligence or willful misconduct in the performance of its obligations under this Agreement. 8.2 Limitation on Generator's Liability. Generator does not guarantee the non-occurrence of, or warrant against, and will have no liability under this Agreement for, and Pepco will release Generator from all claims or damages arising under this Agreement which are associated with any interruption in the availability of the Station or local services pursuant to Section 3.11, any reduction, curtailment, interruption or reduction of energy from the Station, or damage to Pepco's facilities, except to the extent such interruption or damage is caused by Generator's gross negligence or willful misconduct in the performance of its obligations under the Agreement. 8.3 Consequential Damages. Except for indemnity obligations set forth in Article 9, neither Party, nor their respective officers, directors, agents, employees, Affiliates, or successors or assigns of any of them, shall be liable to the other Party or its Affiliates, officers, directors, agents, employees, successors or assigns for claims, suits, actions or causes of action for incidental, punitive, special, indirect, multiple or consequential damages (including, without limitation, replacement power costs, lost revenues, claims of customers, attorneys' fees and litigation costs) connected with, or resulting from, performance or non-performance of this Agreement, or any actions undertaken in connection with or related to this Agreement, including, without limitation, any such damages which are based upon causes of action for 307 breach of contract, tort (including negligence and misrepresentation), breach of warranty or strict liability. The provisions of this Section 8.3 shall apply regardless of fault and shall survive termination, cancellation, suspension, completion, or expiration of this Agreement. ARTICLE 9 INDEMNIFICATION FOR THIRD PARTY CLAIMS 9.1 Generator's Indemnification. Generator shall indemnify, hold harmless, and defend Pepco and its Affiliates, as the case may be, and their respective officers, directors, employees, agents, contractors, subcontractors, invitees, successors and permitted assigns from and against any and all claims, liabilities, costs, damages, and expenses (including, without limitation, reasonable attorney and expert fees, and disbursements incurred by any of them in any action or proceeding between Pepco and a third party or Generator) for damage to property of unaffiliated third parties, injury to or death of any person, including Pepco's employees or any third parties, to the extent caused, by the negligence or willful misconduct of Generator's and/or its officers, directors, employees, agents, contractors, subcontractors or invitees arising out of or connected with Generator's performance or breach of this Agreement, or the exercise by Generator of its rights hereunder. In furtherance of the foregoing indemnification and not by way of limitation thereof, Generator hereby waives any defense it might otherwise have under applicable workers' compensation laws. 9.2 Pepco's Indemnification. Pepco shall indemnify, hold harmless, and defend Generator and its Affiliates, as the case may be, and their respective officers, directors, employees, agents, contractors, subcontractors, invitees, successors and permitted assigns from and against any and all claims, liabilities, costs, damages, and expenses (including, without limitation, reasonable attorney and expert fees, and disbursements incurred by any of them in any action or proceeding between the Generator and a third party or Pepco) for damage to property of unaffiliated third parties, injury to or death of any person, including Generator's employees or any third parties, to the extent caused by the negligence or willful misconduct of Pepco and/or its officers, directors, employees, agents, contractors, subcontractors or invitees arising out of or connected with Pepco's performance or breach of this Agreement, or the exercise by Pepco of its rights hereunder. In furtherance of the foregoing indemnification and not by way of limitation thereof, Pepco hereby waives any defense it might otherwise have under applicable workers' compensation laws. 9.3 Indemnification Procedures. If either Party intends to seek indemnification under this Article 9 from the other Party, the Party seeking indemnification shall give the other Party notice of such claim within ninety (90) 308 days of the later of the commencement of, or the Party's actual knowledge of, such claim or action. Such notice shall describe the claim in reasonable detail, and shall indicate the amount (estimated if necessary) of the claim that has been, or may be sustained by, said Party. To the extent that the other Party will have been actually and materially prejudiced as a result of the failure to provide such notice, such notice will be a condition precedent to any liability of the other Party under the provisions for indemnification contained in this Agreement. Neither Party may settle or compromise any claim without the prior consent of the other Party; provided, however, said consent shall not be unreasonably withheld or delayed. 9.4 Survival. The indemnification obligations of each Party under this Article 9 shall continue in full force and effect regardless of whether this Agreement has either expired or been terminated or canceled. ARTICLE 10 INSURANCE 10.1 Insurance Coverage. The Parties shall maintain at their own cost and expense, fire, liability, worker's compensation, and other forms of insurance relating to their respective property and facilities subject to this Agreement in the manner, and amounts, and for the durations as is customary in the electric utility industry. 10.2 Certificates of Insurance. The Parties agree to furnish each other with certificates of insurance evidencing the insurance coverage obtained in accordance with this Article 10, and the Parties agree to notify and send copies to the other of any policies maintained hereunder upon written request by a Party. Each Party must notify the other Party within ten (10) business days of receiving notice of cancellation, change, amendment or renewal of any insurance policy required pursuant to Section 10.1 above. 10.3 Additional Insureds and Waiver. Each Party and its affiliates shall be named as additional insureds on the general liability insurance policies obtained in accordance with Section 10.1, above, as regards liability under this Agreement; and each Party shall waive its rights of recovery against the other for any loss or damage covered by such policy. 309 ARTICLE 11 FORCE MAJEURE 11.1 Effect of Force Majeure. Notwithstanding anything in this Agreement to the contrary, Generator and Pepco shall not be liable in damages or otherwise or responsible to the other for its failure to carry out any of its obligations under this Agreement (except for the obligation to pay sums of money due and owing hereunder) to the extent that they are unable to so perform or are prevented from performing by an event of Force Majeure and has complied with Section 11.3. 11.2 Force Majeure Defined. Force Majeure means those causes beyond the reasonable control of the Party affected, which by the exercise of reasonable diligence, including Good Utility Practice, that Party is unable to prevent, avoid, mitigate, or overcome, including the following: any act of God, labor disturbance (including a strike), act of the public enemy, war, insurrection, riot, fire, storm or flood, explosion, breakage or accident to machinery or equipment, electric system disturbance), order, regulation or restriction imposed by governmental, military or lawfully established civilian authorities, or any other cause of a similar nature beyond a Party's reasonable control. 11.3 Notification. A Party shall not be entitled to rely on the occurrence of an event of Force Majeure as a basis for being excused from performance of its obligations under this Agreement, unless the Party relying on the event or condition shall: (a) provide prompt written notice of such Force Majeure event to the other Party, including an estimation of its expected duration and the probable impact on the performance of its obligations hereunder; (b) exercise all reasonable efforts in accordance with Good Utility Practice to continue to perform its obligations under this Agreement; (c) expeditiously take action to correct or cure the event or condition excusing performance; (d) exercise all reasonable efforts to mitigate or limit damages to the other Party; and (e) provide prompt notice to the other Party of the cessation of the event or condition giving rise to its excuse from performance. Subject to this Section 11.3, any obligation under this Agreement shall be suspended only to the extent caused by such Force Majeure and only during the continuance of any inability of performance caused by such Force Majeure but for no longer period. ARTICLE 12 DISPUTES 12.1 Disputes 310 12.1.1 A Party with a claim or dispute under this Agreement shall submit to the Operating Committee a notification of such claim or dispute within sixty (60) days after the circumstances that gave rise to the claim or the question or issue in dispute. The notification shall be in writing and shall include a concise statement of the claim or the issue or question in dispute, a statement of the relevant facts and documentation to support the claim. In the event the Operating Committee is unable, in good faith, to resolve their disagreement in a manner satisfactory to both Parties within thirty (30) days after receipt by the Operating Committee of a notification specifying the claim, issue or question in dispute, the Parties shall refer the dispute to their respective senior management. If, after using their good faith best efforts to resolve the dispute, senior management cannot resolve the dispute within thirty (30) days, the Parties shall utilize the arbitration procedures set forth below in Section 12.2 to resolve a dispute, provided that nothing herein or therein shall prohibit either Party from at any time requesting from a court of competent jurisdiction a temporary restraining order, preliminary injunction, or other similar form of equitable relief to enforce performance of the provisions of this Agreement. 12.2 Arbitration. (a) Unless the Parties other wise mutually agree in writing to another form of dispute resolution such as dispute resolution under the PJM Agreement or the MAAC agreement, any arbitration initiated under this Agreement shall be conducted before a single neutral arbitrator appointed by the Parties within thirty (30) days of receipt by respondent of the demand for arbitration. If the Parties are unable to agree on an arbitrator, such arbitration shall be appointed by the American Arbitration Association. Unless the Parties agree otherwise, the arbitrator shall be an attorney or retired judge with at least fifteen (15) years of experience, and shall not have any current or past substantial business or financial relationships with any Party to the arbitration. If possible, the arbitrator shall have experience in the electric utility industry. Unless otherwise agreed, the arbitration shall be conducted in accordance with the American Arbitration Association's Commercial Arbitration Rules, then in effect. Any arbitration proceedings, decision or award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act of the United States, 9 U.S.C. Section 1 et seq. The location of any arbitration hereunder shall be in the District of Columbia. (b) The arbitration shall, if possible, be concluded not later than six (6) months after the date that it is initiated. The arbitrator shall be authorized only to interpret and apply the provisions of this Agreement or any related agreements entered into under this Agreement and shall have no power to modify 311 or change any of the above in any manner. The arbitrator shall have no authority to award punitive or multiple damages or any damages inconsistent with this Agreement. The arbitrator shall, within thirty (30) days of the conclusion of the hearing, unless such time is extended by agreement of the Parties, notify the Parties in writing of his or her decision, stating his or her reasons for such decision and separately listing his or her findings of fact and conclusions of law. The decision of the arbitrator rendered in such a proceeding shall be final and binding on the Parties. Judgment on the award may be entered upon it in any court having jurisdiction. 12.3 FERC Dispute Resolution. Nothing in this Agreement shall preclude, or be construed to preclude, any Party from filing a petition or complaint with FERC with respect to any arbitrable claim over which FERC has jurisdiction. In such case, the other Party may request FERC to reject or to waive jurisdiction. If FERC rejects or waives jurisdiction with respect to all or a portion of the claim, the portion of the claim not so accepted by FERC shall be resolved through arbitration, as provided in this Agreement. To the extent that FERC asserts or accepts jurisdiction over the claim, the decision, finding of fact or order of FERC shall be final and binding, subject to judicial review under the Federal Power Act, and any arbitration proceedings that may have commenced with respect to the claim prior to the assertion or acceptance of jurisdiction by FERC shall be terminated. ARTICLE 13 REPRESENTATIONS 13.1 Representations of Pepco. Pepco hereby represents and warrants to Generator as follows: (a) Incorporation. Pepco is a corporation duly organized, validly existing and in good standing under the laws of the District of Columbia and the Commonwealth of Virginia, and has all requisite corporate power and authority to own, lease and operate its material assets and properties and to carry on its business as now being conducted. (b) Authority. Pepco has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery by Pepco of this Agreement and the consummation by Pepco of the transactions contemplated hereunder have been duly and validly authorized by the Board of Directors of Pepco or by a committee thereof to whom such authority has been delegated and no other corporate proceedings on the part of Pepco are necessary to authorize this Agreement or the transactions contemplated hereby. This Agreement has been duly and validly 312 executed and delivered by Pepco and, assuming that this Agreement constitutes a valid and binding agreement of Generator, constitutes a valid and binding agreement of Pepco, enforceable by Pepco in accordance with its terms. (c) Consents and Approvals; No Violation. (i) Neither the execution and delivery of this Agreement by Pepco nor performance by Pepco of its obligations hereunder will (A) conflict with or result in any breach of any provision of the Certificate of Incorporation or By-laws of Pepco, (B) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation to which Pepco or any of its subsidiaries is a party or by which any of their respective assets may be bound or (C) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Pepco, or any of its assets, except in the case of clauses (B) and (C) for such failures to obtain a necessary consent, defaults and violations which would not, individually or in the aggregate, have a material adverse effect on the ability of Pepco to discharge its obligations under this Agreement (a "Pepco Material Adverse Effect"). (ii) No declaration, filing or registration with, or notice to, or authorization, consent or approval of any governmental authority is necessary for performance by Pepco of its obligations hereunder, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made would not, individually or in the aggregate, have a Pepco Material Adverse Effect. 13.2 Representations of Generator. Generator hereby represents and warrants to Pepco as follows: (a) Incorporation. Generator is a [corporation] duly [incorporated], validly existing and in good standing under the laws of the State of __________, and has all requisite [corporate] power and authority to own, lease and operate its material assets and properties and to carry on its business as now being conducted. (b) Authority. Generator has all necessary [corporate] power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery by the Generator of this Agreement and the consummation by Generator of the transactions contemplated hereby have been duly and validly authorized the [Board of Directors] of Generator 313 or by a committee thereof to whom such authority has been delegated and no other [corporate] proceedings on the part of Generator are necessary to authorize this Agreement or the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Generator and, assuming that this Agreement constitutes a valid and binding agreement of Pepco, constitutes a valid and binding agreement of Generator, enforceable against Generator in accordance with its terms. (c) Consents and Approvals. (i) Neither the execution and delivery of this Agreement by Generator nor performance by Generator of its obligations hereunder will (A) conflict with or result in any breach of any provision of the [Certificate of Incorporation or By-laws] of Generator, (B) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation to which Generator or any of its subsidiaries is a party or by which any of their respective assets may be bound or (C) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Generator, or any of its assets, except in the case of clauses (B) and (C) for such failures to obtain a necessary consent, defaults and violations which would not, individually or in the aggregate, have a material adverse effect on the ability of Generator to discharge its obligations under this Agreement (a "Generator Material Adverse Effect"). (ii) No declaration, filing or registration with, or notice to, or authorization, consent or approval of any Governmental Authority is necessary for performance by Generator of its obligations hereunder, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made would not, individually or in the aggregate, have a Generator Material Adverse Effect. ARTICLE 14 ASSIGNMENT/CHANGE IN CORPORATE IDENTITY 14.1 Assignment. (a) Except as set forth in this Article 14, neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned by either Party hereto, without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. 314 (b) Subject to Section 14.2, upon ten (10) days prior written notice to Generator, Pepco may assign this Agreement, and Pepco's rights, interests and obligations hereunder, to (i) an Affiliate of Pepco that owns all or part of Pepco's Transmission System or (ii) an independent system operator or independent transmission company whose control over all or part of Pepco's Transmission System has been approved by the FERC. (c) Subject to Section 14.2, Generator may (a) assign any of its rights and obligations hereunder to an Affiliate to the extent necessary for the Generator to qualify as an exempt wholesale generator under Section 32 of the Public Utility Holding Company Act of 1935, as amended, and (b) assign, transfer, pledge or otherwise dispose of its rights and interests hereunder to a trustee, lending institution, or other Person for the purposes of financing or refinancing the Station, including upon or pursuant to the exercise of remedies under such financing or refinancing, or by way of assignments, transfers, conveyances of dispositions in lieu thereof; provided, however, that no such assignment shall relieve or in any way discharge Generator from the performance of its duties and obligations under this Agreement. Pepco agrees to execute and deliver, at Generator's expense, such documents as may be reasonably necessary to accomplish any such assignment, transfer, conveyance, pledge or disposition of rights hereunder for purposes of the financing or refinancing of the Facility, so long as Pepco's rights under this Agreement are not thereby altered, amended, diminished or otherwise impaired. (d) Subject to Section 14.2, either Party may assign this Agreement to a successor to all or substantially all of the assets of such Party by way of merger, consolidation, sale or otherwise, provided such successor assumes in writing and becomes liable for all of such Party's duties and obligations hereunder. 14.2 Release of Rights and Obligations. No assignment, transfer, conveyance, pledge or disposition of rights, interests, duties or obligations under this Agreement by a Party shall relieve that Party from liability and financial responsibility for the performance thereof after any such transfer, assignment, conveyance, pledge or disposition unless and until (i) the transferee or assignee shall agree in writing to assume the obligations and duties of that Party under this Agreement and to impose such obligations on subsequent permitted transferees and assignees and (ii) the non-assigning Party has consented in writing to such assumption and to a release of the assigning Party from such liability, such consent not to be unreasonably withheld or delayed. 14.3 Change in Corporate Identity. If Generator terminates its existence as a [corporate] entity by merger, acquisition, sale, consolidation or otherwise, or if all or substantially all of Generator's assets are transferred to another person or 315 business entity without complying with this Article 14, Pepco shall have the right, enforceable in a court of competent jurisdiction, to enjoin Generator's successor from using the Station in any manner that does not comply with the requirements of this Agreement or that impedes Pepco's ability to carry on its ongoing business operations. 14.4 Successors and Assigns. This Agreement and all of the provisions hereof are binding upon, and inure to the benefit of, the Parties and their respective successors and permitted assigns. ARTICLE 15 SUBCONTRACTORS Nothing in this Agreement shall prevent the Parties from utilizing the services of subcontractors as they deem appropriate, provided, however, the Parties agree that, where applicable, all said subcontractors shall comply with the terms and conditions of this Agreement. The creation of any subcontract relationship shall not relieve the hiring Party of any of its obligations under this Agreement. Each Party shall be fully responsible to the other Party for the acts and/or omission of any subcontractor it hires as if no subcontract had been made. Any obligation imposed by this Agreement upon the Parties, where applicable, shall be equally binding upon and shall be construed as having application to any subcontractor. The Parties shall each be liable for, indemnify, and hold harmless the other Party, their Affiliates and their officers, directors, employees, agents, servants, and assigns from and against any and all claims, demands, or actions, from the other Party's subcontractors; and shall pay all costs, expenses and legal fees associated therewith and all judgments, decrees and awards rendered therein. No subcontractor is intended to be or shall be deemed a third-party beneficiary of this Agreement. ARTICLE 16 NOTICES 16.1 Emergency Notices. At or prior to the Effective Date, each Party shall indicate to the other Party, by notice, the appropriate person during each eight-hour work shift to contact in the event of an emergency, a scheduled or forced interruption or reduction in services. The notice last received by a Party shall be effective until modified in writing by the other Party. 16.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given (as of the time of delivery or, in the case of a telecopied communication, of confirmation) if delivered personally, telecopied (which is confirmed) or sent by overnight courier (providing proof of delivery) to 316 the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice): if to Pepco, to: Potomac Electric Power Company 1900 Pennsylvania Avenue, N.W. Washington, D.C. 20068 Telecopier: (202) ________________ Attention: ________________________ if to Generator, to: c/o Southern Energy, Inc. 900 Ashwood Parkway Suite 500 Atlanta, Georgia 30338-4780 Telecopier: (770) 821-6575 Attention: ARTICLE 17 AMENDMENTS 17.1 Amendments. Except as set forth in Sections 2.2 and 17.2 of this Agreement, this Agreement may be amended, modified, or supplemented only by written agreement of both Pepco and Generator. 17.2 FERC Proceedings (a) Pepco may unilaterally make application to FERC under Section 205 of the Federal Power Act and pursuant to the FERC's rules and regulations promulgated thereunder for, or exercise any rights it may have under Section 206 of the Federal Power Act and the regulations thereunder with respect to, a change in any rates, terms and conditions, charges, classification of service, rule or regulation for any services Pepco provides under this Agreement over which FERC has jurisdiction. (b) Generator may exercise its rights under Section 205 or 206 of the Federal Power Act and pursuant to FERC's rules and regulations promulgated thereunder with respect to any rate, term, condition, charge, classification of service, rule or regulation for any services provided under this Agreement over which FERC has jurisdiction. 317 ARTICLE 18 MISCELLANEOUS PROVISIONS 18.1 Waiver. Except as otherwise provided in this Agreement, any failure of a Party to comply with any obligation, covenant, agreement, or condition herein may be waived by the Party entitled to the benefits thereof only by a written instrument signed by the Party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement, or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. 18.2 Labor Relations. The Parties agree to immediately notify the other Party, verbally and then in writing, of any labor dispute or anticipated labor dispute which may reasonably be expected to affect the operations of the other Party. 18.3 No Third Party Beneficiaries. Nothing in this Agreement is intended to confer upon any other person except the Parties any rights or remedies hereunder or shall create any third party beneficiary rights in any person. No provision of this Agreement shall create any rights in any such persons in respect of any benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement except as expressly provided for thereunder. 18.4 Governing Law This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland (regardless of the laws that might otherwise govern under applicable principles of conflicts of law). 18.5 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 18.6 Interpretation. When a reference is made in this Agreement to an Article, Section, Schedule or exhibit, such reference shall be to an Article or Section of, or Schedule or exhibit to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation" or equivalent words. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this 318 Agreement as a whole and not to any particular provision of this Agreement. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Unless otherwise expressly stated otherwise herein, the word "day" shall mean any calendar day including weekends and holidays. Any agreement, instrument, statute, regulation, rule or order defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument, statute, regulation, rule or order as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes, regulations, rules or orders) by succession of comparable successor statutes, regulations, rules or orders and references to all attachments thereto and instruments incorporated therein. References to a person are also to its permitted successors and assigns. Each Party acknowledges that it has been represented by counsel in connection with the review and execution of this Agreement, and, accordingly, there shall be no presumption that this Agreement or any provision hereof be construed against the Party that drafted this Agreement. 18.7 Jurisdiction and Enforcement. Each of the Parties irrevocably submits to the exclusive jurisdiction of the federal and state courts of the State of Maryland for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each of the Parties agrees to commence any action, suit or proceeding relating hereto either in the federal courts of the State of Maryland or, if such suit, action or proceeding may not be brought in such court for jurisdictional reasons, in the state courts of the State of Maryland. Each of the Parties further agrees that service of process, summons, notice or document by hand delivery or U.S. registered mail at the address specified for such Party in Section 16.2 (or such other address specified by such Party from time to time pursuant to Section 16.2) shall be effective service of process for any action, suit or proceeding brought against such Party in any such court. Each of the Parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in the federal and state courts of the State of Maryland and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 18.8 Entire Agreement. This Agreement, Asset Sale Agreement, the Confidentiality Agreement and the Ancillary Agreements including the Exhibits, Schedules, documents, certificates and instruments referred to herein or therein and other contracts, agreements and instruments contemplated hereby or thereby, embody the entire agreement and understanding of the Parties in respect of the 319 transactions contemplated by this Agreement. There are no restrictions, promises, representations, warranties, covenants or undertakings other than those expressly set forth or referred to herein or therein. This Agreement, the Asset Sale Agreement and the Ancillary Agreements supersede all prior agreements and understandings between the Parties with respect to the transactions contemplated by this Agreement other than the Confidentiality Agreement. 18.9 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. 18.10 Independent Contractor Status. Nothing in this Agreement shall be construed as creating any relationship between Pepco and Generator other than that of independent contractors. 18.11 Conflicts. Except with respect to the amendments, indemnification, liability, default and remedies provisions contained herein or as otherwise expressly provided herein, in the event of any conflict or inconsistency between the terms of this Agreement and the terms of the Asset Sale Agreement, the terms of the Asset Sale Agreement shall prevail. 320 IN WITNESS WHEREOF, Pepco and Generator have caused this Interconnection Agreement (Dickerson) to be signed by their respective duly authorized officers as of the date first above written. POTOMAC ELECTRIC POWER COMPANY By: ------------------------------------------------- Name: Title: [GENERATOR] By: ------------------------------------------------- Name: Title: 321 SCHEDULE A DEFINITIONS Part A. Capitalized terms not defined in the body of the Agreement shall have the meaning set forth in Part A of this Schedule A. (Part B of this Schedule A sets forth capitalized terms defined within the Agreement.) (1) "Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. (2) "Ancillary Agreements" has the meaning set forth in the Asset Sale Agreement. (3) "Closing" has the meaning set forth in the Asset Sale Agreement. (4) "Confidentiality Agreement" has the meaning set forth in the Asset Sale Agreement. (5) "Costs" means all costs, including without limitation, any Taxes, costs of acquiring real property, costs and fees for permits, franchises, licenses and regulatory approvals except to the extent that such costs are allocated to a party or parties other than the Generator by the PJM Interconnection LLC or otherwise under the PJM Tariff or PJM Agreement. (6) "Easement" means the Easement Agreement dated __________, 2000, between the Parties with respect to the Station. (7) "Environmental Laws" means all former, current and future federal, state, local and foreign laws (including common law), treaties, regulations, rules, ordinances, codes, decrees, judgments, directives or orders (including consent orders) and environmental permits, in each case, relating to pollution or protection of the environment or natural resources, including laws relating to Releases or threatened Releases, or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, arrangement for disposal, transport, recycling or handling, of Hazardous Substances. (8) "Emergency" means (a) with respect to Pepco, a condition or situation which Pepco, the PJM Interconnection LLC, the PJM System Operator or the Transmission Operator deem imminently likely to (i) endanger life or property, or (ii) adversely affect or impair the Transmission System, Pepco's electrical system or the electrical or transmission systems of others to which the Transmission System or Pepco's electrical system are directly or indirectly connected and (b) with respect to the Generator, a condition or situation which the Generator deems imminently likely to (i) endanger life or property, or (ii) adversely affect or impair the Station. (9) "FERC" means the Federal Energy Regulatory Commission or its successors. 322 (10) "Generating Facilities" means the Station and any additional generating plants, turbines or other generating facilities constructed by Generator after the Effective Date at the site of the Station. (11) "Generator" has the meaning set forth in the introductory paragraph of this Agreement and shall include its permitted successors and assigns. (12) "Generator Facilities" mean the equipment and facilities owned by the Generator but located on Pepco's property which are identified in Schedule B of this Agreement. (13) "Good Utility Practice" means any of the applicable practices, methods and acts (a) required by FERC, NERC, MAAC, the PJM Interconnection LLC, the PJM System Operator, or the successor of any of them, whether or not the Party whose conduct is at issue is a member thereof, (b) required by applicable law or regulations, (c) required by the Pepco Interconnection Standards or the policies and standards of Pepco relating to emergency operations; (d) otherwise engaged in or approved by a significant portion of the electric utility industry during the relevant time period; which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with law, regulation, good business practices, reliability, safety, and expedition. Good Utility Practice is not intended to be limited to the optimum practice, method, or act to the exclusion of all others, but rather to be acceptable practices, methods, or acts generally accepted in the region. (14) "Hazardous Substances" means (i) any petrochemical or petroleum products, crude oil or any fraction thereof, ash, radioactive materials, radon gas, asbestos in any form, urea formaldehyde foam insulation or polychlorinated biphenyls, (ii) any chemicals, materials, substances or wastes defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "restricted hazardous materials," "extremely hazardous substances," "toxic substances," "contaminants" or "pollutants" or words of similar meaning and regulatory effect contained in any Environmental Law or (iii) any other chemical, material, substance or waste which is prohibited, limited or regulated by any Environmental Law. (15) "Interconnection Facilities" means those facilities or portions of facilities owned or operated by Pepco to provide Interconnection Service which shall include, but not be limited to (1) facilities the cost of which is reasonably allocated to the Interconnection Service provided to the Station, or (2) Attachment Facilities or Local Upgrade Facilities, as defined in the PJM Tariff, which are associated with the Interconnection Service and operated and maintained by Pepco. 323 (16) "Interconnection Service" means the services provided by Pepco which are necessary to connect the Station to the Transmission System for parallel operation of the Station and to enable Generator to transmit the energy and ancillary services produced by the Station to the Transmission System and receive Station energy service and ancillary services, including blackstart power, from the Generator's supplier. (17) "MAAC" means the Mid-Atlantic Area Council, a reliability council under Section 202 of the Federal Power Act established pursuant to the MAAC Agreement dated August 1, 1994, or any successor thereto. (18) "Maintain" means construct, reconstruct, install, inspect, repair, replace, operate, patrol, maintain, use, modernize, expand, upgrade, or other similar activities. (19) "MDPSC" means the Maryland Public Service Commission or any successor agency thereto. (20) "NERC" means North American Electric Reliability Council or any successor thereto. (21) "Pepco" has the meaning set forth in the introductory paragraph of this Agreement and shall include its permitted successors or assigns. (22) "Pepco Facilities" means the equipment and facilities owned by Pepco but located on Generator's property which are identified in Schedule B of this Agreement. (23) "Pepco Interconnection Standards" means Pepco's Interconnection and Parallel Operating Guidelines as amended, modified or replaced from time to time. A copy of the existing Pepco Interconnection Standards is attached hereto as Schedule E. (24) "Point of Interconnection" means each ownership point of demarcation set forth in Schedule C where capacity, energy and ancillary services are transferred between the Station and the Transmission System. (25) "Pepco Transmission Facilities" means those transmission, substation, and communication facilities and related equipment, including the Interconnection Facilities, and any additions, modifications or replacements thereto, that are utilized to provide Interconnection Service to the Station. (26) "PJM" means the Pennsylvania New Jersey-Maryland interconnected power pool operated under the PJM Agreement and any successor thereto including any regional transmission operator, independent system operator, transco, or any other independent system administrator that possesses operational or planning control over the Transmission System. (27) "PJM Agreement" means the Amended and Restated Operating Agreement of the PJM Interconnection LLC dated as of June 2, 1997. 324 (28) "PJM Control Area" shall mean the control area recognized by NERC as the PJM Control Area. (29) "PJM Interconnection LLC" means the independent system operator of the PJM Control Area pursuant to the PJM Operating Agreement and the PJM Tariff. (30) "PJM Generator Connection Agreement" means the interconnection agreement entered into between the Generator and the PJM Interconnection LLC pursuant to the PJM Tariff with respect to the interconnection of the Station and the Transmission System. (31) "PJM Reliability Agreement" means the Reliability Assurance Agreement dated June 2, 1997 among the load serving entities of PJM. (32) "PJM Requirements" means the rules, regulations or other requirements of PJM or MAAC contained in or adopted pursuant to the PJM Agreement, the PJM Tariff or the PJM Reliability Agreement which are applicable to Pepco, with respect to the Transmission System or the Interconnection Service, and the Generator with respect to the Generating Facilities. (33) "PJM System Operator" shall mean the PJM Interconnection LLC, energy control center staff responsible for central dispatch as provided in the PJM Agreement. (34) "PJM Tariff" means the PJM Open Access Transmission Tariff providing transmission service within the PJM Control Area. (35) "Qualified Personnel" means individuals who possess any required licenses and are trained for their positions and duties by Generator and/or Pepco pursuant to Good Utility Practice. (36) "Release" means any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture. (37) "Revenue Meters" means all MWh and MVArh meters, pulse isolation relays, pulse conversion relays, transducers required by Pepco or the PJM Interconnection or PJM System Operator for billing or other purposes, and associated totalizing equipment and appurtenances and compensation required to measure the transfer of energy across the Point of Interconnection. (38) "Station" means the Dickerson Station as defined in the Asset Sale Agreement. (39) "Switching, Tagging, and Grounding Rules" means Pepco's switching, tagging and grounding rules as amended, modified or replaced from time to time. A copy of the existing Switching, Tagging and Grounding Rules is attached hereto as Schedule D. 325 (40) "Taxes" means all taxes, surtaxes, charges, fees, levies, penalties or other assessments imposed by any United States federal, state, local or foreign taxing authority, including income taxes, excise, property, sales, transfer, franchise, special franchise, payroll, recording, withholding, social security or other taxes, in each case including any interest, penalties or additions attributable thereto. (41) "Transmission System" means the facilities owned, controlled, or operated by Pepco, for purposes of providing transmission service, including services under the PJM Tariff, and Interconnection Service. (42) "Transmission Operator" means the person, or persons designated by Pepco to coordinate the day to day interconnection of the Station with the Transmission System. Part B. The following terms have the meaning specified in the section of this Agreement set forth opposite to such term:
Term Agreement Reference Agreement Preamble Asset Sale Agreement Preamble Effective Date Section 2.1 Event of Default Section 8.1 Force Majeure Section 11.1 Initial Period Section 3.10 Operating Committee Section 3.20 Party or Parties Preamble Term Article 2
326 EXHIBIT E-4 INTERCONNECTION AGREEMENT (Chalk Point) By and Between POTOMAC ELECTRIC POWER COMPANY and ___________________________________ Dated ____________, 2000 327 INTERCONNECTION AGREEMENT TABLE OF CONTENTS
ARTICLE 1 - DEFINITIONS 1 ARTICLE 2 TERM AND TERMINATION 2 2.1 Term 2 2.2 Change in Law 2 2.3 Effect after Termination 2 ARTICLE 3 - CONTINUING OBLIGATIONS AND RESPONSIBILITIES 2 3.1 Interconnection Service 2 3.2 New Construction or Modifications 3 3.2.1 Pepco Construction or Modifications 3 3.2.2 Generator Construction or Modifications 4 3.2.3 Modifications Affecting the Transmission System or the Station 5 3.3 Access, Easements, Conveyances, Licenses, and Restrictions 6 3.4 Facility and Equipment Maintenance 7 3.5 Pepco Facilities and Generator Facilities 7 3.6 Equipment Testing Obligations 8 3.7 Inspections 8 3.8 Information Reporting Obligations 9 3.9 Local Services 10 3.9.1 General 10 3.9.2 Temporary Suspension of Local Services 11 3.10 Pepco Provided Services 11 3.11 Generator Provided Services 11 3.12 Optional Services 12 3.13 Metering and Telemetering 12 3.14 Emergency Procedure 13 3.15 Interconnection Service Interruptions 14 3.21.2 SMECO CT Metering and Telemetering 14 3.16 Unit Status Notification 14 3.17 Scheduled Maintenance Notification and Coordination 15 3.17.1 Local Routine Inspection and Maintenance 15 3.17.2 Transmission Sytem Maintenance 15 3.18 Safety 15 3.18.1 General 15 3.18.2 Switching Tagging and Grounding 16 3.19 Environmental Compliance and Procedures 16 3.20 Operating Committee 16 3.21 SMECO CT 17 3.21.1 Information Reporting Obligations 17 3.21.2 SMECO CT Metering and Telemetering 17 3.21.2 SMECO CT Unit Status Notification 18
328 3.21.4 SMECO CT Operations 18 ARTICLE 4 - OPERATIONS 20 4.1 General 20 4.2 Generator's Operating Obligations 20 4.2.1 General 20 4.2.2 Voltage or Reactive Control Requirements 21 4.3 Auditing of Accounts and Records 22 ARTICLE 5 - COST RESPONSIBILITIES AND BILLING PROCEDURES 23 5.1 Cost Responsibilities for Interconnection Service 23 5.2 Cost Responsibilities for Local Services 23 5.3 Billing Procedures 23 5.4 Billing Disputes 24 ARTICLE 6 - CONFIDENTIALITY 24 6.1 Confidentiality Obligations of Pepco 24 6.2 Confidentiality Obligations of Generator 24 6.3 Confidentiality of Audits 25 6.4 Remedies 25 ARTICLE 7 - EVENTS OF DEFAULT 26 7.1 Events of Default 26 7.2 Remedies 26 ARTICLE 8 - LIMITATION OF LIABILITY 27 8.1 Limitation of Pepco's Liability 27 8.2 Limitation on Generator's Liability 28 8.3 Consequential Damages 28 ARTICLE 9 - INDEMNIFICATION FOR THIRD PARTY CLAIMS 28 9.1 Generator's Indemnification 28 9.2 Pepco's Indemnification 29 9.3 Indemnification Procedures 29 9.4 Survival 29 ARTICLE 10 - INSURANCE 30 10.1 Insurance Coverage 30 10.2 Certificates of Insurance 30 10.3 Additional Insureds and Waiver 30 ARTICLE 11 - FORCE MAJEURE 30 11.1 Effect of Force Majeure 30 11.2 Force Majeure Defined 30 11.3 Notification 31 ARTICLE 12 - DISPUTES 31 12.1 Disputes 31 12.2 Arbitration 32 12.3 FERC Dispute Resolution 32 ARTICLE 13 - REPRESENTATIONS 33 13.1 Representations of Pepco 33 13.2 Representations of Generator 34
329 ARTICLE 14 - ASSIGNMENT/CHANGE IN CORPORATE IDENTITY 35 14.1 Assignment 35 14.2 Release of Rights and Obligations 36 14.3 Change in Corporate Identity 36 14.4 Successors and Assigns 36 ARTICLE 15 - SUBCONTRACTORS 36 ARTICLE 16 - NOTICES 37 16.1 Emergency Notices 37 16.2 Notices 37 ARTICLE 17 - AMENDMENTS 38 17.1 Amendments 38 17.2 FERC Proceedings 38 ARTICLE 18 - MISCELLANEOUS PROVISIONS 38 18.1 Waiver 38 18.2 Labor Relations 39 18.3 No Third Party Beneficiaries 39 18.4 Governing Law 39 18.5 Counterparts 39 18.6 Interpretation 39 18.7 Jurisdiction and Enforcement 40 18.8 Entire Agreement 40 18.9 Severability 41 18.10 Independent Contractor Status 41 18.11 Conflicts 41 SCHEDULE A DEFINITIONS 2 SCHEDULE B Pepco Facilities and Generator Facilities 7 SCHEDULE C Points of Interconnection 9 SCHEDULE D Switching, Tagging and Grounding Rules 11 SCHEDULE E Pepco's Interconnection Standards 14 SCHEDULE F Local Services 15 SCHEDULE G Pepco Current Projects 17 SCHEDULE H Real Time Telemetry List for the Station 18 SCHEDULE I Real Time Telemetry List for the SMECO CT 20
330 INTERCONNECTION AGREEMENT (Chalk Point) This Interconnection Agreement ("Agreement") dated as of _________, 2000 by and between Potomac Electric Power Company ("Pepco") a District of Columbia and Virginia corporation, and _____________ ("Generator") a ___________ [corporation]. Pepco and Generator are each referred to herein as a "Party," and collectively referred to herein as the "Parties." WITNESSETH: WHEREAS, Pepco, and Generator have entered into an Asset Purchase and Sale Agreement for Generating and Related Assets ("Asset Sale Agreement") dated June 7, 2000, for the sale by Pepco to Generator of certain assets comprising the Chalk Point electric generation station; WHEREAS, Pepco intends to continue to operate its transmission and distribution businesses from their present locations; WHEREAS, Generator needs Interconnection Service from Pepco for the Chalk Point electric generating station; WHEREAS, Pepco needs access to parts of the Generator's assets, and Generator needs access to parts of the Pepco's assets; and WHEREAS, the Parties have agreed in the Asset Sale Agreement to execute this Agreement in order to provide Interconnection Service to Generator and to define continuing responsibilities and obligations of the Parties with respect to the use of the other Party's property, assets and facilities as set forth herein. NOW THEREFORE, in consideration of the mutual representations, covenants and agreements hereinafter set forth, and intending to be legally bound hereby, the Parties hereto agree as follows: ARTICLE 1 DEFINITIONS Capitalized terms used in this Agreement shall have the meanings specified or referred to in Schedule A. 331 ARTICLE 2 TERM AND TERMINATION 2.1 Term. This Agreement shall become effective upon consummation of the Closing ("Effective Date"), and unless terminated sooner in accordance with the terms of this Agreement, shall continue in full force and effect until the earlier to occur of (i) the permanent cessation by the Generator of the power generation functions of the Station or (ii) the permanent cessation of the interconnection functions of the Transmission System. 2.2 Change in Law. If (a) the FERC, any state or state regulatory commission or the PJM Interconnection LLC implements a change in any law, regulation, rule or practice, or (b) Pepco's compliance with a change in any law or regulation, which compliance, in either case, affects, or may reasonably be expected to affect, Pepco's performance under this Agreement, the Parties shall negotiate in good faith any amendments to this Agreement that are necessary to adapt the terms of this Agreement to such change, and Pepco shall file such amendments with the FERC. If the Parties are unable to reach agreement on such amendments, either Party shall have the right to make a unilateral filing with the FERC to modify this Agreement pursuant to Sections 205 or 206 or any other applicable provision of the Federal Power Act and the FERC rules and regulations thereunder; provided that the other Party shall have the right to oppose such filing and to participate fully in any proceeding established by the FERC to address such amendments. 2.3 Effect after Termination. The applicable provisions of this Agreement shall continue in effect after cancellation or termination hereof to the extent necessary to provide for final billings, billing adjustments and payments pertaining to liability and indemnification obligations arising from acts or events that occurred while this Agreement was in effect. ARTICLE 3 CONTINUING OBLIGATIONS AND RESPONSIBILITIES 3.1 Interconnection Service 3.1.1 Subject to the terms and conditions of the Agreement, Pepco shall (a) permit the Station to continue to be interconnected to the Transmission System at the Point of Interconnection, and (b) provide Interconnection Service at the Point of Interconnection. Pepco agrees to permit Generator to interconnect Station as long as Generator continues to operate such facilities pursuant to PJM Requirements and Good Utility Practice. 332 3.1.2 Interconnection Service shall not include, and Pepco shall not be responsible under this Agreement for (a) transmission service, losses or ancillary services associated with the use of the Transmission System for the delivery of capacity, energy and/or ancillary services produced by the Generating Facilities, or (b) providing or procuring capacity, energy and/or ancillary services to the Generator or the Generating Facilities. 3.1.3 The Generator's interconnection to the Transmission System of any new or expanded generating capacity of the Station shall (a) be subject to PJM Requirements and/or FERC requirements governing interconnections and (b) require a separate interconnection agreement mutually agreed to by the Parties in writing. 3.1.4 Notwithstanding anything to the contrary in this Agreement, Pepco's performance of its obligations under this Agreement shall be subject to Generator entering into, and complying with, any PJM Generator Connection Agreement which may be required pursuant to PJM Requirements with respect to Interconnection Service or the Station. 3.2 New Construction or Modifications 3.2.1 Pepco Construction or Modifications (a) Pepco shall make such additions, modifications, replacements and improvements to the Interconnection Facilities as are required by PJM Requirements or Good Utility Practice to enable Pepco to provide Interconnection Service in compliance with this Agreement. Generator shall pay all reasonable Costs incurred by Pepco for such additions, modifications, replacements or improvements. (b) Except with respect to operation and maintenance or ordinary maintenance done in the ordinary course of business or to respond to abnormal or emergency conditions, if any additions, modifications, replacements or improvements to the Interconnection Facilities undertaken by Pepco might reasonably be expected to affect Generator's operation of the Station, Pepco shall provide one hundred twenty (120) days written notice to Generator prior to undertaking such additions, modifications, replacements or improvements. Any such additions, modifications, replacements or improvements shall comply with PJM Requirements and Good Utility Practice. The Parties shall mutually agree to the scheduling of such addition, modification, replacement or improvement to minimize any adverse impact on the Station. Generator shall be deemed to have accepted Pepco's proposed additions, modifications, replacements or improvements unless Generator gives Pepco written notice of its objections within thirty (30) days after 333 receipt of Pepco's notice. Generator's acceptance or deemed acceptance of Pepco's proposed additions, modifications, replacements or improvements shall not be construed, with respect thereto, as: (i) confirmation or endorsement of the design; (ii) a warranty of safety, durability or reliability; or (iii) responsibility for strength, details of design, adequacy or capability. 3.2.2 Generator Construction or Modifications (a) In the event Generator plans to increase the capacity of the Generating Facilities, Generator shall submit to Pepco any and all plans and specifications that Pepco may reasonably request related to such increase. Such specifications and plans shall be submitted by Generator to Pepco at the time that Generator submits its plans under the PJM Tariff related to such expansion but no later than one hundred twenty (120) days prior to commencing such proposed increase. Any such additions, modifications, or replacements shall comply with PJM Requirements and Good Utility Practice and shall be subject to Section 3.1.3 of this Agreement. (b) If Generator plans any additions, modifications, or replacements to the Station that will not increase its capacity, but could reasonably be expected to affect the Transmission System or the Interconnection Facilities, Generator shall give Pepco reasonable notice, but not less than one hundred twenty (120) days prior written notice and Generator shall comply with all applicable PJM Requirements with respect to such proposed additions, modifications, or replacements. All such additions, modifications, or replacements shall (i) comply with PJM Requirements and Good Utility Practice, (ii) be accompanied by appropriate information and operating instructions, and (iii) be subject to the review and acceptance of Pepco, which review shall be based on PJM Requirements and Good Utility Practice and which acceptance shall not unreasonably be withheld or delayed. Pepco shall be deemed to have accepted Generator's proposed additions, modifications or replacements unless Pepco gives Generator written notice of its objections within thirty (30) days after receipt of the Generator's notice. (c) Pepco's acceptance of Generator's plans and specifications for any proposed additions, modifications, or replacements to the Generating Facilities and Pepco's participation in any interconnected operations with Generator are not and shall not be construed as: (i) confirmation or endorsement of the design of the Generating Facilities; (ii) a warranty of safety, durability or reliability of the Generating Facilities; or (iii) responsibility for strength, details of design, adequacy, or capability of the Generating Facilities. (d) Pepco, pursuant to PJM Requirements, shall inform Generator of any additions, modifications, or replacements to the Transmission System or 334 Interconnection Facilities, that will be necessary as a result of the addition, modification, or replacement to Station made pursuant to Section 3.2.2. Generator shall compensate Pepco for all reasonable Costs it incurs associated with any modifications, additions, or replacements made to the Interconnection Facilities or Transmission System related to any additions, modifications, or replacements to the Generating Facilities. Pepco shall provide an estimate as early as practicable, but in any event not less than sixty (60) days prior to the initiation of such addition, modification or replacement. (e) Generator shall modify, at its sole cost and expense, the Generating Facilities as may be reasonably required to conform with PJM Requirements and Good Utility Practice or to conform with additions, modifications, or replacements of the Transmission System or the Interconnection Facilities, required by PJM Requirements and Good Utility Practice or implemented in accordance with this Agreement, (including, without limitation, changes to the voltages at which the Transmission System is operated) provided, however, that Generator shall not be obligated under this Agreement to modernize, expand or upgrade the Generating Facilities unless the failure to modernize, expand or upgrade is reasonably likely to have a material adverse effect on the operation of Pepco's Facilities. (f) Upon completion of any addition, modification, or replacement to the Generating Facilities that may reasonably be expected to affect the Transmission System or the Interconnection Facilities, but no later than ninety (90) days thereafter, Generator shall issue "as built" drawings to Pepco. Upon completion of any addition, modification, or replacement to the Interconnection Facilities, that may reasonably be expected to affect the operation of the Station, but no later than ninety (90) days thereafter, Pepco shall issue "as built" drawings to the Generator. 3.2.3 Modifications Affecting the Transmission System or the Station (a) Notwithstanding anything herein to the contrary, except with respect to the projects or construction set forth in Schedule G, no modifications to or new construction of facilities, or access thereto, including but not limited to rights of way, fences, gates, shall be made by either Party which might reasonably be expected to adversely affect the other Party with respect to such Party's obligations and responsibilities under this Agreement, without prior written notification as set forth in Section 3.2.3(b) below, and without providing the other Party with sufficient information regarding the work prior to commencement to enable such Party to evaluate the impact of the proposed work on its operations. For all modifications reasonably expected to adversely affect the operations of the other Party's facilities, the Party shall provide at least one hundred twenty (120) days 335 written notice to the other Party prior to undertaking such additions, modifications or replacements. Any such additions, modifications, or replacements shall comply with PJM Requirements and Good Utility Practice. (b) The Parties shall mutually agree to the scheduling of such addition, modification, replacement or improvement proposed pursuant to Section 3.2.3(a) to minimize any adverse impact on the Station or the Transmission System. For all construction work, major modifications, or circuit changes involving new or existing facilities, equipment, systems or circuits that could reasonably be expected to affect the operation of either Party, the Party desiring to perform said work shall provide the other Party with drawings, plans, specifications, and other necessary documentation for review at least sixty (60) days prior to the beginning of construction provided that for routine telecommunications work, the Party doing the work shall only be required to provide 48 hours prior notice. The Party shall be deemed to have accepted the proposed additions, modifications, replacements or improvements unless the Party gives written notice of their objections within sixty (60) days after receipt of such notice. The Party's acceptance or deemed acceptance of the proposed additions, modifications, replacements or improvements shall not be construed, with respect thereto, as: (i) confirmation or endorsement of the design; (ii) a warranty of safety, durability or reliability; or (iii) responsibility for strength, details of design, adequacy or capability. 3.3 Access, Easements, Conveyances, Licenses, and Restrictions 3.3.1 The Parties hereby grant to each other such licenses, access and other rights to the Station and the Interconnection Facilities as may be necessary for either Party's performance of their respective obligations under this Agreement. Such access shall be provided in a manner so as not to unreasonably interfere with the ongoing business operations, rights, and obligations of the other Party and shall be subject to the safety and security practices of the Party granting such access. Access shall only be granted to Qualified Personnel. 3.3.2 A Party shall not restrict a Party's rights hereunder to access the other Party's property, facilities, or equipment without prior written notification except in an Emergency, in which case the restricted access shall last no longer than three (3) days, unless an alternate means of access is provided. 3.3.3 The Parties' rights with respect to access to their respective facilities properties shall also be governed by the Easement. 3.4 Facility and Equipment Maintenance 336 3.4.1 Pepco shall provide Interconnection Service at the Point of Interconnection in a safe and efficient manner and pursuant to PJM Requirements and Good Utility Practice. Generator shall be responsible for all reasonable Costs incurred by Pepco to provide Interconnection Service and to Maintain the Interconnection Facilities pursuant to the Agreement. 3.4.2 Generator shall Maintain the Generating Facilities (including coordination of its relay protection equipment) in a safe and efficient manner and as required by and in accordance with PJM Requirements and Good Utility Practice, provided, however, that Generator shall not be obligated to modernize, expand or upgrade the Generating Facilities unless the failure to modernize, expand or upgrade is reasonably likely to have a material adverse affect on the operation of the Interconnection Facilities or the Transmission System. 3.4.3 Unless otherwise specified herein, or unless the Parties mutually agree to a different arrangement, neither Party shall be responsible for the maintenance of the other Party's equipment or property regardless of its location. 3.4.4 In addition to the requirements set forth elsewhere in this Agreement, each Party shall Maintain its equipment and facilities and perform its maintenance obligations that could reasonably be expected to affect the operations of the other Party in a safe and efficient manner and pursuant to PJM Requirements and Good Utility Practice. 3.5 Pepco Facilities and Generator Facilities Unless otherwise agreed to by the Parties, the Party owning Pepco Facilities or Generator Facilities shall Maintain those facilities and shall do so pursuant to PJM Requirements and Good Utility Practice and shall make such additions, modifications, replacements and improvements as are required by PJM requirements and Good Utility Practice or which are necessary to maintain Interconnection Service, provided, however, that the Generator shall not be obligated under this Agreement to modernize, expand or upgrade the Generator Facilities unless the failure to modernize, expand or upgrade is reasonably likely to have a material adverse effect on the operation of the Transmission System or Interconnection Facilities. 3.6 Equipment Testing Obligations 3.6.1 For reliability purposes with respect to the Interconnection Facilities and the Transmission System, Pepco may reasonably request, pursuant to PJM Requirements, or Good Utility Practice, that Generator test, calibrate, verify, or validate the Generating Facilities or its equipment, and Generator shall promptly 337 comply with such a request. Generator shall be responsible for all costs of testing, calibrating, verifying or validating its facilities. 3.6.2 At Pepco's request, Generator shall supply to Pepco at no cost, copies of inspection reports, installation and maintenance documents, test and calibration records, verifications, and validations pursuant to the foregoing Section 3.6.1. Pepco shall supply to Generator, at Generator's request and at no cost to Generator, copies of inspection reports, installation and maintenance documents, test and calibration records, verifications, and validations that Pepco has which are related to the Interconnection Facilities. 3.7 Inspections 3.7.1 Pepco shall, at its expense, have the right to inspect or observe all maintenance activities, equipment tests, installation work, construction work, and modification work to the Generating Facilities. Such access by Pepco shall be exercised in a manner which does not unreasonably interfere with Generator's ongoing business operations, rights and obligations and shall be subject to Generator's safety and security practices. If Pepco observes any deficiencies or defects with respect thereto that might reasonably be expected to adversely affect the Transmission System or the Interconnection Facilities, Pepco shall notify the Generator, and Generator shall immediately make any corrections necessitated by PJM Requirements and Good Utility Practice. Notwithstanding the foregoing in this Section 3.7.1, Pepco shall have no liability whatsoever for any failure to fully or adequately observe any deficiency, it being agreed that Generator shall be fully responsible and liable for all such deficiencies, activities, equipment tests, installation, construction or modification. 3.7.2 Generator shall, at its expense, have the right to inspect or observe all maintenance activities, equipment tests, installation work, construction work, and modification work conducted by Pepco to the Interconnection Facilities. Such access by Generator shall be exercised in a manner which does not unreasonably interfere with Pepco's ongoing business operations, rights and obligations and shall be subject to Pepco's safety and security practices. If Generator observes any deficiencies or defects with respect thereto that might reasonably be expected to adversely affect the Station, Generator shall notify Pepco, and Pepco shall immediately make any corrections necessitated by applicable PJM Requirements and Good Utility Practice. Notwithstanding the foregoing in this Section 3.7.2, Generator shall have no liability whatsoever for any failure to fully or adequately observe any deficiency, it being agreed that Pepco shall be fully responsible and liable for all such deficiencies, activities, equipment tests, installation, construction or modification. 338 3.8 Information Reporting Obligations 3.8.1 In order to provide Interconnection Service hereunder, Pepco may request, and Generator shall promptly provide, all relevant information, documents, or data regarding the Generating Facilities that would be expected to materially affect the Transmission System, and which is reasonably requested by NERC, MAAC, the PJM Interconnection LLC, the MDPSC, the District of Columbia Public Service Commission and any other state or District of Columbia agency having jurisdiction over Pepco or Generator, the PJM System Operator, or the Transmission Operator, which disclosure shall be subject to Article 6 of this Agreement regarding the disclosure of commercially sensitive information. 3.8.2 Generator shall promptly supply accurate, complete, and reliable information in response to reasonable information requests for real time data and other data from Pepco necessary for operations, maintenance, compliance with PJM Requirements or regulatory requirements, or analysis of the Interconnection Facilities or the Transmission System. Such information may include metered values for MW and MVAR, voltage, current, automatic voltage regulator status, automatic frequency control, dispatch, frequency, breaker status indication, or any other information reasonably required for reliable operation of the Transmission System pursuant to PJM Requirements and Good Utility Practice. At minimum, Generator shall satisfy the telemetry requirements set forth in Schedule H. 3.8.3 Information pertaining to generation operating parameters shall be gathered and electronically transmitted directly to Pepco's energy management system using a mutually acceptable communications protocol. 3.8.4 Generator shall be responsible for the maintenance, and any required replacements or upgrades of the field devices and equipment used to gather information regarding generation operating parameters. 3.8.5 Generator shall Maintain, at its expense, operating telephone links to the PJM Interconnection LLC, PJM System Operator, Pepco and the Transmission Operator, to provide information deemed necessary by them, or as reasonably deemed necessary by Pepco in accordance with PJM Requirements or Good Utility Practice to integrate operation of the Station with the Transmission System, provided, however, that Generator shall not be obligated under this Agreement to modernize, expand or upgrade the Generator's facilities unless the failure to modernize, expand or upgrade is reasonably likely to have a material adverse effect on the operation of the Transmission System. Generator shall use communication links at the Station consisting of the mobile radio low band C frequency and "all call" and "red phone" systems currently located at the Station (or successor systems as may reasonably be required by Pepco) and shall maintain the 339 availability of such systems to operate during abnormal conditions including blackouts. 3.9 Local Services 3.9.1 General (a) The Parties agree that, due to the integration of certain control schemes of the Station and the Transmission System, it is cost effective to provide each other with the services set forth in Sections 3.10 and 3.11 in accordance with the terms and conditions set forth therein. (b) The Parties shall ensure, in accordance with Good Utility Practice, that services provided by one Party to the other Party pursuant to Sections 3.10 and 3.11 shall be available at all times and in the manner and at the prices specified herein. Notwithstanding the foregoing, either Party may change the services, provided that (1) there is no cost to the receiving Party as a result of such change, (2) the quality, reliability and integrity of the replacement services is equivalent to the existing service, and (3) there is otherwise no materially adverse effect on the receiving Party. (c) Neither Party shall terminate any services set forth in Sections 3.10 and 3.11 below that it agrees to provide to the other Party, without the other Party's prior written consent, which consent shall not be unreasonably withheld or delayed, provided, however, if a Party receiving a service under Sections 3.10 or 3.11 no longer needs or desires a particular service, said Party shall notify the other Party and the providing Party shall terminate said services as soon thereafter as practicable. 3.9.2 Temporary Suspension of Local Services (a) The Party providing a service set forth in Sections 3.10 or 3.11 below shall notify and obtain approval, which approval shall not be unreasonably withheld or delayed, from the receiving Party of any scheduled temporary suspension of services at least five (5) business days in advance of such suspension. Such notification shall include an estimated time duration for a return to normal conditions. (b) In the event of any unplanned or forced suspension of the services set forth in Sections 3.10 or 3.11, below, the providing Party shall immediately notify the other Party first verbally and then in writing. The providing Party shall use all reasonable efforts to minimize the duration of said suspension. 340 (c) The Parties agree to complete any repairs, modifications or corrections, in accordance with Good Utility Practice, that are necessary to restore to the other Party as soon as reasonably practicable any services set forth in Sections 3.10 or 3.11 below that have been suspended. 3.10 Pepco Provided Services: Schedule F sets forth the local services Pepco shall provide to the Generator pursuant to the terms of this Agreement. Unless otherwise specified in Schedule F, for a period of three (3) years after the Effective Date (the "Initial Period") and subject to Section 3.9 above, Pepco shall provide Generator with the local services set forth in Schedule F at no cost and in consideration of the local services Generator shall provide Pepco in accordance with Section 3.11 below. If Generator desires the continuation of any of the services set forth in Schedule F which are subject to the Initial Period to continue after the Initial Period, upon Generator's written request to Pepco made at least 60 days prior to the expiration of the Initial Period, the Parties shall engage in good faith negotiations to reach mutually agreeable terms and conditions upon which such services will continue, provided, however, that if such agreement is not reached prior to the expiration of the Initial Period, Pepco shall cease to provide services under Section 3.10 at the end of the Initial Period. 3.11 Generator Provided Services. Schedule F sets forth the local services Generator shall provide to Pepco pursuant to the terms of this Agreement. Unless otherwise specified in Schedule F, for the Initial Period and subject to Section 3.9 above, Generator shall provide Pepco with the local services set forth in Schedule F at no cost and in consideration of the local services Pepco shall provide Generator in accordance with Section 3.10 above. If Pepco desires the continuation of any of the services set forth in Schedule F which are subject to the Initial Period to continue after the Initial Period, upon Pepco's written request to Generator made at least 60 days prior to the expiration of the Initial Period, the Parties shall engage in good faith negotiations to reach mutually agreeable terms and conditions upon which such services will continue, provided, however, that if such agreement is not reached prior to the expiration of the Initial Period, Generator shall cease to provide services under Section 3.11 at the end of the Initial Period. 3.12 Optional Services: Generator may request that Pepco provide the following services to the Generator, provided, however, that Pepco shall not have any obligation to provide such services unless the Parties have mutually agreed in writing to the price and other terms and conditions of such service: (a) PJM interface and dispatch services through the Pepco control center; (b) use of Pepco's communication services; 341 (c) maintenance of certain auxiliary and communications equipment at the Station; (d) maintenance of high-voltage and medium-voltage equipment such as power transformers and power circuit breakers; (e) maintenance of protective relaying, certain control equipment, such as AGC and MSVC, plant batteries and revenue meters owned by Generator. 3.13 Metering and Telemetering 3.13.1 Generator shall, at Generator's expense: (a) own, Maintain and repair, all Revenue Meters, instrument transformers and appurtenances associated with Revenue Meters, and real time telemetry, (b) conduct meter accuracy and tolerance tests, and (c) prepare all calibration reports required for equipment that measures energy transfers at the Point of Interconnection. All meter accuracy and tolerance testing hereunder shall be in accordance with PJM Requirements and Good Utility Practice and shall be conducted, at Pepco's request, in the presence of Pepco's representative. 3.13.2 Generator shall own and Maintain, at the Generator's expense, equipment for redundant real-time communications and transmission of telemetry, hourly MWh information, and such other information as required by the PJM System Operator or Transmission Operator, or as reasonably required by Pepco in accordance with PJM Requirements and Good Utility Practice. 3.14 Emergency Procedure 3.14.1 Pepco, through the Transmission Operator, shall provide Generator with prompt verbal notification of Emergencies with regard to the Transmission System which may reasonably be expected to affect Generator's immediate operation of the Station or Generator Facilities, and Generator shall provide Pepco with prompt verbal notification of Emergencies with regard to the Station which may reasonably be expected to affect Interconnection Service or the Transmission System. Such notification shall describe the Emergency, the extent of damage or deficiency, the anticipated length of an outage and the corrective action taken and/or to be taken. Said verbal notification shall be followed as soon as practicable (but no later than 24 hours after the verbal notification) with written notification. 3.14.2 If an Emergency in the good faith judgment of a Party endangers or could endanger life or property, the Party recognizing the problem 342 shall take such action as may be reasonable and necessary to prevent, avoid, or mitigate injury, danger, or loss. If however the Emergency involves transmission or electrical equipment, Generator shall notify the Transmission Operator, and obtain the consent of such personnel, prior to performing any switching operations. 3.14.3 Pepco may, consistent with PJM Requirements and Good Utility Practice, have the Transmission System Operator take whatever actions (including tripping Generator's synchronizing breakers) or inactions it deems necessary during an Emergency to: (a) preserve public safety; (b) preserve the integrity of the Transmission System, (c) limit or prevent damage; or (d) expedite restoration of service. If any action or inaction by Pepco or the Transmission Operator under this Section 3.14 results in the discontinuation, curtailment, interruption or reduction of Interconnection Service, Pepco shall use reasonable efforts consistent with PJM Requirements and Good Utility Practice to restore Interconnection Service as promptly as practicable and to minimize the effect of such restoration of service on the Station. 3.15 Interconnection Service Interruptions 3.15.1 If at any time, in the reasonable exercise of the PJM System Operator's judgment, or the Transmission Operator's judgment exercised in accordance with PJM Requirements or Good Utility Practice and on a non-discriminatory basis, a condition exists, including the operation of Generator's equipment, which might reasonably be expected to have a materially adverse affect on the quality of service rendered by Pepco (including services rendered to transmission or distribution customers) or interferes with the safe and reliable operation of the Transmission System, Pepco may discontinue, curtail, reduce and/or interrupt Interconnection Service until the condition has been corrected. 3.15.2 Unless the PJM System Operator, the Transmission Operator or Pepco perceives that an Emergency exists or the risk of one is imminent, Pepco shall give Generator reasonable notice of its intention to discontinue, curtail, interrupt or reduce Interconnection Service in response to the interfering condition and, where practical, allow suitable time for Generator to remove the interfering condition if it is the result of Generator's operations, before the discontinuation, curtailment, interruption or reduction commences. Pepco's judgment with regard to the interruption of service under this paragraph shall be made pursuant to PJM Requirements and Good Utility Practice. In the case of such interruption, Pepco shall immediately confer with Generator regarding the conditions causing such interruption and its recommendation concerning timely correction thereof. In the event Interconnection Service is interrupted under this section due to Generator's failure to operate and Maintain the Generating Facilities pursuant to PJM Requirements or Good Utility Practice, Generator shall compensate Pepco for all 343 costs reasonably incurred by Pepco attributable to the interruption and restoration of Interconnection Service. Pepco shall use reasonable efforts consistent with PJM Requirements and Good Utility Practice to restore Interconnection Service interrupted, curtailed or reduced pursuant to this Section 3.15 as promptly as practicable and to minimize the effect of such restoration of service on the Station. 3.16 SMECO CT Metering and Telemetering 3.16.1 Generator acknowledges that Pepco requires information regarding the status of the Station for Transmission System reliability purposes. Accordingly, by 10:00 a.m. of each day, the Generator shall provide Pepco the following information regarding the status of the Station for the following day: Station availability to provide energy and capacity, the Station's scheduled on and off times, Station synchronization, planned outages or deratings, and generation restrictions and limitations. Generator shall immediately notify Pepco of any changes to the information provided pursuant to the foregoing sentence. 3.16.2 In circumstances, such as forced outages, Generator shall notify Pepco of its generating unit's temporary interruption of generation as soon as practicable; and it shall provide Pepco, as soon as practicable, with a schedule of when generation will be resumed. 3.17 Scheduled Maintenance Notification and Coordination 3.17.1 Local Routine Inspection and Maintenance. The Parties agree that, due to the integration of certain control and protective relaying schemes between the Station and the Interconnection Facilities, it will be necessary for them to cooperate in the inspection, maintenance and testing of these areas of integration. Each Party will provide advance notice to the other Party before undertaking any work in these areas, especially in electrical circuits involving circuit breaker trip and close contacts, current transformers or potential transformers and such work will be performed in accordance with PJM Requirements and Good Utility Practice. 3.17.2 Transmission System Maintenance. Pepco shall consult with Generator regarding timing of scheduled maintenance of the Interconnection Facilities or the transmission facilities of the Transmission System which Pepco or the Transmission Operator performs and which might reasonably be expected to affect the Station. Pepco shall, to the extent practicable, schedule any testing, shutdown, or withdrawal of said facilities to coincide with Generator's scheduled outages for the Station. To facilitate such consultation and to the extent the information is not available from the PJM System Operator in a timely manner, in June of each year, or on another date mutually acceptable to the Parties, Generator 344 shall furnish Pepco with non-binding preliminary generator maintenance schedules covering the upcoming two years and any material changes thereto. In the event Pepco is unable to schedule the outage of its facilities to coincide with Generator's schedule, Pepco shall notify Generator as soon as practicable of the reasons for the facilities' outage, of the time scheduled for the outage to take place, and of its expected duration. 3.18 Safety 3.18.1 General. Pepco agrees with respect to the Interconnection Facilities and the Transmission System, and Generator agrees with respect to the Station, that all work performed by either Party on such facilities which could reasonably be expected to affect the operations of the other Party shall be performed in accordance with all applicable PJM Requirements and Good Utility Practice. 3.18.2 Switching Tagging and Grounding . Each Party shall comply with the Switching, Tagging and Grounding Rules. Pepco will notify Generator of any changes in its Switching, Tagging and Grounding Rules. Generator shall be responsible for all switching, tagging and grounding on Generator's side of the Point of Interconnection and, except for Generator Facilities, Pepco shall be responsible for all switching, tagging and grounding on its side of the Point of Interconnection. 3.19 Environmental Compliance and Procedures 3.19.1 Each Party shall be responsible for complying with all Environmental Laws applicable to it with respect to its facilities or property. 3.19.2 A Party shall notify the other Party first verbally and then in writing, of any Releases of a Hazardous Substance or any type of remediation activities related thereto as soon as possible but no later than twenty-four (24) hours after the occurrence if within the reasonable judgment of the Party said activities could reasonably be expected to have a material adverse effect upon the operations of the other Party and shall promptly furnish to the other Party copies of any reports filed with any governmental agencies covering such events. This Section 3.19.2 does not effect any allocation of liability with respect to the Station pursuant to the Asset Sale Agreement. 3.19.3 Neither Party shall knowingly take any actions which might reasonably be expected to have a material adverse environmental impact upon the operations of the other Party without prior written notification and agreement between then Parties. 345 3.20 Operating Committee. The Parties shall establish an operating committee consisting of one representative for each Party ("Operating Committee"). The Operating Committee shall act only by unanimous agreement or consent. The Parties shall designate their respective representatives to the Operating Committee, plus an alternate by written notice. Each Party's representative on the Operating Committee is authorized to act on behalf of such Party with respect to any matter arising under this Agreement which is to be decided by the Operating Committee, however, the Operating Committee shall not have any authority to modify or otherwise alter the rights and obligations of the Parties hereunder. The Operating Committee shall develop and implement suitable policies and procedures with which to coordinate the interaction of the Parties with respect to the performance of their duties and obligations under this Agreement. 3.21 SMECO CT To the extent that Generator owns, operates and/or controls the SMECO CT, Generator shall be subject to the provisions set forth in this Section 3.21. 3.21.1 Information Reporting Obligations (a) For Transmission System reliability purposes, Pepco may request, and Generator shall promptly provide, all relevant information, documents, or data regarding the SMECO CT that would be expected to materially affect the Transmission System, and which is reasonably requested by NERC, MAAC, the PJM Interconnection LLC, the MDPSC, any other state or District of Columbia agency having jurisdiction over Pepco or Generator, the PJM System Operator, or the Transmission Operator, which disclosure shall be subject to Article 6 of this Agreement regarding the disclosure of commercially sensitive information. (b) Generator shall promptly supply accurate, complete, and reliable information in response to reasonable information requests for real time data and other data from Pepco necessary for operations, maintenance, compliance with PJM Requirements or regulatory requirements, or analysis of the Transmission System. Such information may include metered values for MW and MVAR, voltage, current, automatic voltage regulator status, automatic frequency control, dispatch, frequency, breaker status indication, or any other information reasonably required for reliable operation of the Transmission System pursuant to PJM Requirements and Good Utility Practice. At minimum, Generator shall satisfy the telemetry requirements set forth in Schedule I for the SMECO CT. (c) Generator shall comply with Sections 3.8.3, 3.8.4 and 3.8.5 with respect to the SMECO CT. 346 3.21.2 SMECO CT Metering and Telemetering (a) With respect to the SMECO CT, Generator shall, at Generator's expense: (a) own, Maintain and repair, all meters, instrument transformers and appurtenances associated with meters, and real time telemetry, (b) conduct meter accuracy and tolerance tests, and (c) prepare all calibration reports required for equipment that measures energy transfers at the interconnection points with Pepco's or any other parties' facilities. All meter accuracy and tolerance testing hereunder shall be in accordance with PJM Requirements and Good Utility Practice and shall be conducted, at Pepco's request, in the presence of Pepco's representative. (b) With respect to the SMECO CT, Generator shall own and Maintain, at the Generator's expense, equipment for redundant real-time communications and transmission of telemetry, hourly MWh information, and such other information as required by the PJM System Operator or Transmission Operator, or as reasonably required by Pepco in accordance with PJM Requirements and Good Utility Practice. 3.21.3 SMECO CT Unit Status Notification Generator shall provide the information described in Article 16 with respect to the status of the SMECO CT at the times set forth in Article 16. 3.21.4 SMECO Operations (a) Generator agrees that to the extent the SMECO CT could reasonably be expected to have a material effect on the operations of Pepco, it shall operate the SMECO CT in a safe and efficient manner and in accordance with PJM Requirements and Good Utility Practice, and otherwise in accordance with the terms of this Agreement. (b) Generator shall comply with the requests, orders, and directives of Pepco with respect to the SMECO CT to the extent such requests, orders or directives are (a) issued pursuant to PJM Requirements or Good Utility Practice, (b) not discriminatory; and (c) otherwise in accordance with this Agreement or applicable tariffs. In the event Generator believes that a request, order, or directive of Pepco exceeds the limitations in this Section 3.21.4(b), it shall nevertheless comply with the request, order, or directive pending resolution of the dispute under Article 12. The Parties agree to cooperate in good faith to expedite the resolution of any disputes arising under this Section 3.21.4(b). 347 (c) Generator shall (i) comply with Pepco's system restoration plan and black start criteria applicable to the SMECO CT as configured as of the Effective Date or (ii) if the SMECO CT's configuration is modified, provide alternative service restoration and black start capability in accordance with PJM Requirements. Generator shall ensure that operating personnel at the SMECO CT are trained to implement such system restoration or black start plans. The Generator shall test the SMECO CT's black-start combustion-turbines annually to confirm that the black-start combustion-turbines will start without an external power supply. To the extent that the SMECO CT would be required to be black-started in accordance with Pepco's Emergency Conditions and System Restoration Manual, as revised from time to time, and plant restoration procedures, Generator shall test the SMECO CT at least once every three years. Testing shall confirm the ability of the SMECO CT to go from a shut down condition to an operating condition and start delivering power without assistance from the Transmission System or SMECO's system. These testing requirements shall remain in place until PJM promulgates specific rules governing black-start testing. (d) Unless otherwise agreed to by the Parties or authorized or directed by the PJM Interconnection LLC, Generator shall operate the SMECO CT with automatic voltage regulators in service at all times. The voltage regulators will control voltage consistent with the range of voltage prescribed by Pepco or the Transmission System Operator in accordance with PJM Requirements and Good Utility Practice. (i) Generator will operate the SMECO CT in accordance with prescribed voltage schedules pursuant to Section 3.21.4(d) to the extent the SMECO CT is operating within its reactive generating capability and not violating any electrical constraints. Should Generator fail to comply with such voltage schedules, Pepco or the Transmission Operator, as applicable, shall provide written notice to the Generator of its intent to remedy that failure. If Generator does not promptly commence appropriate action after receiving such notice, Pepco or the Transmission Operator may then take any necessary action at Generator's expense to remedy such failure, including the installation of capacitor banks or other reactive compensation equipment necessary to ensure the proper voltage or reactive supply at the Station including, at a minimum, by installing such equipment outside any building housing the SMECO CT. Pepco shall make, to the extent feasible, reasonable efforts to minimize the impact of such action on the operation of the SMECO CT. (ii) Generator shall notify the Transmission Operator if (a) any or all generating units at the SMECO CT reaches a VAR limit, (b) there is any deviation from the voltage schedules prescribed pursuant to Section 3.21.4(d) which is outside the limits permitted by PJM Requirements or Good Utility 348 Practice, or (c) any automatic voltage regulator is removed from or restored to service. (iii) The Transmission Operator may from time to time, pursuant to PJM Requirements or Good Utility Practice, request or direct Generator to adjust generator controls that impact the Transmission System, such as excitation, droop, and automatic generation control settings and Generator shall comply with such request or directions. (iv) Generator acknowledges that the Transmission Operator may have the right, to the extent authorized or directed by the PJM Interconnection LLC, to require reduced or increased generation of the SMECO CT in accordance with PJM Requirements, or in accordance with applicable rules of the Transmission Operator. ARTICLE 4 OPERATIONS 4.1 General 4.1.1 The Parties agree to operate their respective equipment that could reasonably be expected to have a material effect on the operations of the other Party in a safe and efficient manner and in accordance with PJM Requirements and Good Utility Practice, and otherwise in accordance with the terms of this Agreement. 4.1.2 Generator shall comply with the requests, orders, and directives of Pepco with respect to Interconnection Service to the extent such requests, orders or directives are (a) issued pursuant to PJM Requirements or Good Utility Practice, (b) not discriminatory; and (c) otherwise in accordance with this Agreement or applicable tariffs. 4.1.3 In the event Generator believes that a request, order, or directive of Pepco exceeds the limitations in this Section 4.1.2, it shall nevertheless comply with the request, order, or directive pending resolution of the dispute under Article 12. The Parties agree to cooperate in good faith to expedite the resolution of any disputes arising under this Section 4.1. 4.2 Generator's Operating Obligations 4.2.1 General. Generator shall request permission from the Transmission Operator, the PJM System Operator or the PJM Interconnection 349 LLC, as applicable, prior to opening and/or closing circuit breakers in accordance with applicable switching and operations procedures and Good Utility Practice. (a) Generator shall carry out all switching orders from the Transmission Operator, the PJM System Operator, or the PJM Interconnection LLC, in a timely manner and in accordance with PJM Requirements and Good Utility Practice. (b) Generator shall (i) comply with Pepco's system restoration plan and black start criteria applicable to the Station as configured as of the Effective Date or (ii) if the Station's configuration is modified, provide alternative service restoration and black start capability in accordance with PJM Requirements. Generator shall ensure that operating personnel at the Station are trained to implement such system restoration or black start plans. The Generator shall test the Station's black-start combustion-turbines annually to confirm that the black-start combustion-turbines will start without an external power supply. The Generator shall test the Station's steam turbine-generators and those combustion-turbine generators that would be required to be black-started in accordance with Pepco's Emergency Conditions and System Restoration Manual, as revised from time to time, and plant restoration procedures, at least once every three years. Testing shall confirm the ability of a generating unit or Station to go from a shut down condition to an operating condition and start delivering power without assistance from the Transmission System. These testing requirements shall remain in place until PJM promulgates specific rules governing black-start testing. (c) The electricity supplied by Generator to the Point of Interconnection shall be in the form of three-phase 60 Hertz alternating current at the nominal system voltage. (d) Generator's equipment shall conform with Good Utility Practice for harmonic distortion and voltage fluctuation. 4.2.2 Voltage or Reactive Control Requirements. Unless otherwise agreed to by the Parties or authorized or directed by the PJM Interconnection LLC, Generator shall operate the Station with automatic voltage regulators in service at all times. The voltage regulators will control voltage at the Points of Interconnection consistent with the range of voltage prescribed by Pepco or the Transmission System Operator in accordance with PJM Requirements and Good Utility Practice. (a) Generator will operate the Station in accordance with prescribed voltage schedules pursuant to Section 4.2.2 to the extent the Station is operating within its reactive generating capability and not violating any electrical 350 constraints. Should Generator fail to comply with such voltage schedules, Pepco or the Transmission Operator, as applicable, shall provide written notice to the Generator of its intent to remedy that failure. If Generator does not promptly commence appropriate action after receiving such notice, Pepco or the Transmission Operator may then take any necessary action at Generator's expense to remedy such failure, including the installation of capacitor banks or other reactive compensation equipment necessary to ensure the proper voltage or reactive supply at the Station including, at a minimum, by installing such equipment outside any building housing the Generation Facilities. Pepco shall make, to the extent feasible, reasonable efforts to minimize the impact of such action on the operation of the Station. (b) Generator shall notify the Transmission Operator if (a) any or all generating units at the Station reaches a VAR limit, (b) there is any deviation from the voltage schedules prescribed pursuant to Section 4.2.2 which is outside the limits permitted by PJM Requirements or Good Utility Practice, or (c) any automatic voltage regulator is removed from or restored to service. (c) The Transmission Operator may from time to time, pursuant to PJM Requirements or Good Utility Practice, request or direct Generator to adjust generator controls that impact the Transmission System, such as excitation, droop, and automatic generation control settings and Generator shall comply with such request or directions. (d) Generator acknowledges that the Transmission Operator may have the right, to the extent authorized or directed by the PJM Interconnection LLC, to require reduced or increased generation of the Station in accordance with PJM Requirements, or in accordance with applicable rules of the Transmission Operator. 4.3 Auditing of Accounts and Records. The Parties shall have the right, during normal business hours, to audit each other's accounts and records pertaining to transactions under this Agreement, upon twenty (20) days prior written notice, at the offices where such accounts and records are maintained, provided, however, that the audit shall be limited to those portions of the accounts and records that are related to services provided to the other Party under this Agreement. Any such audit of a Party's accounts and records will be at the expense of the auditing Party, shall not be made more frequently than once in any twelve (12) month period, and no such audit may be made with respect to accounts and records relating to periods more than twenty-four (24) months prior to the date of the audit notice. The Party being audited will be entitled to review the audit report and any supporting materials. The Party conducting the audit shall maintain the confidentiality of all information obtained during the audit in compliance with Article 6 of this Agreement. To the extent that audited information includes confidential 351 information, the auditing Party shall designate an independent auditor at its expense to perform such audit. ARTICLE 5 COST RESPONSIBILITIES AND BILLING PROCEDURES 5.1 Cost Responsibilities for Interconnection Service. Except as otherwise expressly stated herein, Generator shall not be responsible for any costs arising from Pepco's provision of Interconnection Service or local services to Generator, except for those costs specified in Sections 3.2.1, 3.2.2, 3.4.1, and 3.15 or arising from the liability or indemnification provisions of this Agreement. 5.2 Cost Responsibilities for Local Services. Except as otherwise expressly provided herein or agreed to by the Parties, each Party shall be responsible for the costs for local services provided to the other Party in Sections 3.10 and 3.11 as set forth in said sections. 5.3 Billing Procedures (a) Within ten (10) days after the first day of each calendar month, each Party shall provide the other Party with a written invoice for any payments due from the other Party for services provided in the previous month. (b) Each invoice shall (i) delineate the month in which the services were provided, (ii) fully describe the services rendered, (iii) be itemized to reflect the services performed or provided, and (iv) provide reasonable detail as to the calculation of the amount involved. (c) All invoices shall be paid within fifteen (15) days after receipt, but not earlier than the 25th day of the month in which the invoice is rendered. All payments shall be made in immediately available funds payable to the other Party, or by wire transfer to a bank designated in writing by such Party. Payment of invoices shall not relieve the paying Party from any responsibilities or obligations it has under this Agreement, nor shall such payment constitute a waiver of any claims arising hereunder. 5.3.2 To the extent that, for any billing period, Generator is obligated to pay to Pepco amounts due and calculated pursuant to Section 5.3, Pepco may use such amounts as a set-off against any amounts owed by Pepco to Generator under this Section 5.3. 352 5.3.3 Interest on any unpaid amounts shall be calculated in accordance with the methodology specified for interest on refunds in FERC regulations at 18 C.F.R. Section 35.19a(a)(2)(iii). Interest on delinquent amounts shall be calculated from the due date of the bill to the date of payment. When payments are made by mail, bills shall be considered as having been paid on the date of receipt by the other Party. 5.4 Billing Disputes. In the event of a billing dispute between the Parties, each Party shall continue to provide services as long as the other Party continues to make all payments not in dispute. Payment of invoices by either Party shall not relieve the paying Party from any responsibilities or obligations it has under this Agreement; nor shall it constitute a waiver of any claims arising hereunder. ARTICLE 6 CONFIDENTIALITY 6.1 Confidentiality Obligations of Pepco. Pepco shall hold in confidence, unless compelled to disclose by judicial or administrative process or other provisions of law, all documents and information furnished by Generator in connection with this Agreement marked "Confidential" or "Proprietary." Except to the extent that such information or documents are (i) generally available to the public other than as a result of a disclosure by Pepco in breach of this Agreement, (ii) available to Pepco on a non-confidential basis prior to disclosure to Pepco by Generator, or (iii) available to Pepco on a non-confidential basis from a source other than Generator, provided that such source is not known, and by reasonable effort could not be known, by Pepco to be bound by a confidentiality agreement with Generator or otherwise prohibited from transmitting the information to Pepco by a contractual, legal or fiduciary obligation, Pepco shall not release or disclose such information to any other person, except to its employees, representatives or agents on a need-to-know basis, in connection with this Agreement who has not first been advised of the confidentiality provisions of this Section 6.1 and has agreed in writing to comply with such provisions. In no event shall such information be disclosed in violation of the requirements of FERC Orders 889 and 889-A, and any successor thereto. Pepco shall promptly notify Generator if it receives notice or otherwise concludes that the production of any information subject to this Section 6.1 is being sought under any provision of law and Pepco shall use reasonable efforts in cooperation with Generator to seek confidential treatment for such confidential information provided thereto. 6.2 Confidentiality Obligations of Generator. Generator shall hold in confidence, unless compelled to disclose by judicial or administrative process or other provisions of law, all documents and information furnished by Pepco in connection with this Agreement marked "Confidential" or "Proprietary." Except to 353 the extent that such information or documents are (i) generally available to the public other than as a result of a disclosure by Generator in breach of this Agreement, (ii) available to Generator on a non-confidential basis prior to disclosure to Generator by Pepco, or (iii) available to Generator on a non-confidential basis from a source other than Pepco, provided that such source is not known, and by reasonable effort could not be known, by Generator to be bound by a confidentiality agreement with Pepco or otherwise prohibited from transmitting the information to Generator by a contractual, legal or fiduciary obligation, Generator shall not release or disclose such information to any other person, except to its employees, representatives or agents on a need-to-know basis, in connection with this Agreement who has not first been advised of the confidentiality provisions of this Section 6.2 and has agreed in writing to comply with such provisions. In no event shall such information be disclosed in violation of the requirements of FERC Orders 889 and 889-A, and any successor thereto. Generator shall promptly notify Pepco if it receives notice or otherwise concludes that the production of any information subject to this Section 6.2 is being sought under any provision of law and Generator shall use reasonable efforts in cooperation with Pepco to seek confidential treatment for such confidential information provided thereto. 6.3 Confidentiality of Audits. The independent auditor performing any audit, as referred to in Section 4.3, shall be subject to a confidentiality agreement between the auditor and the Party being audited. Such audit information shall be treated as confidential except to the extent that its disclosure is required by regulatory or judicial order, for reliability purposes pursuant to PJM Requirements or Good Utility Practice, and pursuant to the FERC's rules and regulations. Except as provided herein, neither Party will disclose the audit information to any third party, without the other Party's prior written consent. Audit information in the hands of the Party not being audited shall be subject to all provisions of Section 6.1 or 6.2, above, as applicable. 6.4 Remedies. The Parties agree that monetary damages would be inadequate to compensate a Party for the other Party's breach of its obligations under Section 6.1 or 6.2, above, as applicable. Each Party accordingly agrees, subject to Article 8, that the other Party shall be entitled to equitable relief, by way of injunction or otherwise, if the first Party breaches or threatens to breach its obligations under Section 6.1 or 6.2 of this Agreement, as applicable, which equitable relief shall be granted without bond or proof of damages, and the receiving Party shall not plead in defense that there would be an adequate remedy at law. 354 ARTICLE 7 EVENTS OF DEFAULT 7.1 Events of Default. Each of the following shall constitute an Event of Default by the a defaulting Party under this Agreement: (a) The failure by a Party to pay any amount due within twenty (20) calendar days after receipt of written notice of nonpayment by the other Party, unless the payment of such amount is disputed in good faith, in which event Section 5.5 shall apply; (b) A Party's breach of any material term or condition of this Agreement, including but not limited to any material breach of a representation, warranty or covenant made in this Agreement which, after receiving written notice of the breach from the non-breaching Party (such notice to set forth in reasonable detail the nature of the default and, where known and if applicable, the steps necessary to cure such default), (i) the breaching Party fails to cure, if curable, within thirty (30) days following receipt of the notice or (ii) if such default is of such a nature that it cannot be cured within thirty (30) days following receipt of such notice, the breaching Party fails within such thirty (30) days to commence the necessary cure and fails at any time thereafter diligently and continuously to prosecute such cure to completion provided that the cure is completed no later than 180 days after the receipt of the default notice; (c) The appointment of a receiver, liquidator or trustee for either Party, and such receiver, liquidator or trustee is not discharged within sixty (60) days; (d) The entry of a decree or decrees adjudicating a Party as bankrupt or insolvent, and such decree or decrees are not stayed or discharged within sixty (60) days; or (e) The filing of voluntary petitions for bankruptcy under any federal or state bankruptcy law by a Party. 7.2 Remedies 7.2.1 If the breaching Party disputes that an Event of Default under Section 7.1.(b) has occurred, the breaching Party shall nonetheless comply with this Section 7.2 pending the resolution of the dispute. If it is determined that no breach or Event of Default under Section 7.1(b) existed, the Party alleging the default shall 355 pay and reimburse the other Party for all reasonable costs and expenses incurred by it to cure the alleged default. 7.2.2 Upon the occurrence of an Event of Default, the non-defaulting Party may (i) exercise all such rights and remedies as may be available to it at law or equity including seeking to recover damages caused by such Event of Default, subject to Article 8 of this Agreement; and/or (ii) terminate this Agreement. The Parties shall not discontinue the performance of any one or more of their obligations hereunder due to the occurrence of an Event of Default during the pendency of any dispute regarding such Event of Default and until such dispute is finally resolved except that Pepco may suspend or interrupt service if necessary for the safe and reliable operation of the Interconnection Facilities or the Transmission System. 7.2.3 Notwithstanding the foregoing, upon the occurrence of any Event of Default, the non-defaulting Party shall be entitled to commence an action to require the defaulting Party to remedy such default by specifically performance of its duties and obligations hereunder in accordance with the terms and conditions hereof. 7.2.4 Notwithstanding anything in this Agreement to the contrary, in the event the Generator's failure to comply with the provisions of Sections 4.1 and 4.2 of this Agreement is reasonably likely to have an immediate and material adverse impact on Pepco or the Transmission System, Pepco shall have the right to take immediately reasonable steps and/or to exercise immediately all remedies available under this Agreement, or at law or equity, including the right, after providing as much notice as is practicable under the circumstances and complying with the applicable FERC notice requirements regarding termination of service, to disconnect the Station from the Transmission System. ARTICLE 8 LIMITATION OF LIABILITY 8.1 Limitation of Pepco's Liability. Pepco does not guarantee the non-occurrence of, or warrant against, and will have no liability hereunder for, and the Generator will release Pepco from all claims or damages associated with, any interruption in the availability of the Interconnection Facilities, Interconnection Service or local services pursuant to Section 3.10 or damages to the Generator's facilities, except to the extent such interruption or damage is caused by Pepco's gross negligence or willful misconduct in the performance of its obligations under this Agreement. 356 8.2 Limitation on Generator's Liability. Generator does not guarantee the non-occurrence of, or warrant against, and will have no liability under this Agreement for, and Pepco will release Generator from all claims or damages arising under this Agreement which are associated with any interruption in the availability of the Station or local services pursuant to Section 3.11, any reduction, curtailment, interruption or reduction of energy from the Station, or damage to Pepco's facilities, except to the extent such interruption or damage is caused by Generator's gross negligence or willful misconduct in the performance of its obligations under the Agreement. 8.3 Consequential Damages. Except for indemnity obligations set forth in Article 9, neither Party, nor their respective officers, directors, agents, employees, Affiliates, or successors or assigns of any of them, shall be liable to the other Party or its Affiliates, officers, directors, agents, employees, successors or assigns for claims, suits, actions or causes of action for incidental, punitive, special, indirect, multiple or consequential damages (including, without limitation, replacement power costs, lost revenues, claims of customers, attorneys' fees and litigation costs) connected with, or resulting from, performance or non-performance of this Agreement, or any actions undertaken in connection with or related to this Agreement, including, without limitation, any such damages which are based upon causes of action for breach of contract, tort (including negligence and misrepresentation), breach of warranty or strict liability. The provisions of this Section 8.3 shall apply regardless of fault and shall survive termination, cancellation, suspension, completion, or expiration of this Agreement. ARTICLE 9 INDEMNIFICATION FOR THIRD PARTY CLAIMS 9.1 Generator's Indemnification. Generator shall indemnify, hold harmless, and defend Pepco and its Affiliates, as the case may be, and their respective officers, directors, employees, agents, contractors, subcontractors, invitees, successors and permitted assigns from and against any and all claims, liabilities, costs, damages, and expenses (including, without limitation, reasonable attorney and expert fees, and disbursements incurred by any of them in any action or proceeding between Pepco and a third party or Generator) for damage to property of unaffiliated third parties, injury to or death of any person, including Pepco's employees or any third parties, to the extent caused, by the negligence or willful misconduct of Generator's and/or its officers, directors, employees, agents, contractors, subcontractors or invitees arising out of or connected with Generator's performance or breach of this Agreement, or the exercise by Generator of its rights hereunder. In furtherance of the foregoing indemnification and not by way of limitation thereof, Generator hereby waives any defense it might otherwise have under applicable workers' compensation laws. 357 9.2 Pepco's Indemnification. Pepco shall indemnify, hold harmless, and defend Generator and its Affiliates, as the case may be, and their respective officers, directors, employees, agents, contractors, subcontractors, invitees, successors and permitted assigns from and against any and all claims, liabilities, costs, damages, and expenses (including, without limitation, reasonable attorney and expert fees, and disbursements incurred by any of them in any action or proceeding between the Generator and a third party or Pepco) for damage to property of unaffiliated third parties, injury to or death of any person, including Generator's employees or any third parties, to the extent caused by the negligence or willful misconduct of Pepco and/or its officers, directors, employees, agents, contractors, subcontractors or invitees arising out of or connected with Pepco's performance or breach of this Agreement, or the exercise by Pepco of its rights hereunder. In furtherance of the foregoing indemnification and not by way of limitation thereof, Pepco hereby waives any defense it might otherwise have under applicable workers' compensation laws. 9.3 Indemnification Procedures. If either Party intends to seek indemnification under this Article 9 from the other Party, the Party seeking indemnification shall give the other Party notice of such claim within ninety (90) days of the later of the commencement of, or the Party's actual knowledge of, such claim or action. Such notice shall describe the claim in reasonable detail, and shall indicate the amount (estimated if necessary) of the claim that has been, or may be sustained by, said Party. To the extent that the other Party will have been actually and materially prejudiced as a result of the failure to provide such notice, such notice will be a condition precedent to any liability of the other Party under the provisions for indemnification contained in this Agreement. Neither Party may settle or compromise any claim without the prior consent of the other Party; provided, however, said consent shall not be unreasonably withheld or delayed. 9.4 Survival. The indemnification obligations of each Party under this Article 9 shall continue in full force and effect regardless of whether this Agreement has either expired or been terminated or canceled. ARTICLE 10 INSURANCE 10.1 Insurance Coverage. The Parties shall maintain at their own cost and expense, fire, liability, worker's compensation, and other forms of insurance relating to their respective property and facilities subject to this Agreement in the manner, and amounts, and for the durations as is customary in the electric utility industry. 358 10.2 Certificates of Insurance. The Parties agree to furnish each other with certificates of insurance evidencing the insurance coverage obtained in accordance with this Article 10, and the Parties agree to notify and send copies to the other of any policies maintained hereunder upon written request by a Party. Each Party must notify the other Party within ten (10) business days of receiving notice of cancellation, change, amendment or renewal of any insurance policy required pursuant to Section 10.1 above. 10.3 Additional Insureds and Waiver. Each Party and its affiliates shall be named as additional insureds on the general liability insurance policies obtained in accordance with Section 10.1, above, as regards liability under this Agreement; and each Party shall waive its rights of recovery against the other for any loss or damage covered by such policy. ARTICLE 11 FORCE MAJEURE 11.1 Effect of Force Majeure. Notwithstanding anything in this Agreement to the contrary, Generator and Pepco shall not be liable in damages or otherwise or responsible to the other for its failure to carry out any of its obligations under this Agreement (except for the obligation to pay sums of money due and owing hereunder) to the extent that they are unable to so perform or are prevented from performing by an event of Force Majeure and has complied with Section 11.3. 11.2 Force Majeure Defined. Force Majeure means those causes beyond the reasonable control of the Party affected, which by the exercise of reasonable diligence, including Good Utility Practice, that Party is unable to prevent, avoid, mitigate, or overcome, including the following: any act of God, labor disturbance (including a strike), act of the public enemy, war, insurrection, riot, fire, storm or flood, explosion, breakage or accident to machinery or equipment, electric system disturbance), order, regulation or restriction imposed by governmental, military or lawfully established civilian authorities, or any other cause of a similar nature beyond a Party's reasonable control. 11.3 Notification. A Party shall not be entitled to rely on the occurrence of an event of Force Majeure as a basis for being excused from performance of its obligations under this Agreement, unless the Party relying on the event or condition shall: (a) provide prompt written notice of such Force Majeure event to the other Party, including an estimation of its expected duration and the probable impact on the performance of its obligations hereunder; (b) exercise all reasonable efforts in accordance with Good Utility Practice to continue to perform its obligations under this Agreement; (c) expeditiously take action to correct or cure the event or condition excusing performance; (d) exercise all reasonable efforts to mitigate or 359 limit damages to the other Party; and (e) provide prompt notice to the other Party of the cessation of the event or condition giving rise to its excuse from performance. Subject to this Section 11.3, any obligation under this Agreement shall be suspended only to the extent caused by such Force Majeure and only during the continuance of any inability of performance caused by such Force Majeure but for no longer period. ARTICLE 12 DISPUTES 12.1 Disputes 12.1.1 A Party with a claim or dispute under this Agreement shall submit to the Operating Committee a notification of such claim or dispute within sixty (60) days after the circumstances that gave rise to the claim or the question or issue in dispute. The notification shall be in writing and shall include a concise statement of the claim or the issue or question in dispute, a statement of the relevant facts and documentation to support the claim. In the event the Operating Committee is unable, in good faith, to resolve their disagreement in a manner satisfactory to both Parties within thirty (30) days after receipt by the Operating Committee of a notification specifying the claim, issue or question in dispute, the Parties shall refer the dispute to their respective senior management. If, after using their good faith best efforts to resolve the dispute, senior management cannot resolve the dispute within thirty (30) days, the Parties shall utilize the arbitration procedures set forth below in Section 12.2 to resolve a dispute, provided that nothing herein or therein shall prohibit either Party from at any time requesting from a court of competent jurisdiction a temporary restraining order, preliminary injunction, or other similar form of equitable relief to enforce performance of the provisions of this Agreement. 12.2 Arbitration. (a) Unless the Parties other wise mutually agree in writing to another form of dispute resolution such as dispute resolution under the PJM Agreement or the MAAC agreement, any arbitration initiated under this Agreement shall be conducted before a single neutral arbitrator appointed by the Parties within thirty (30) days of receipt by respondent of the demand for arbitration. If the Parties are unable to agree on an arbitrator, such arbitration shall be appointed by the American Arbitration Association. Unless the Parties agree otherwise, the arbitrator shall be an attorney or retired judge with at least fifteen (15) years of experience, and shall not have any current or past substantial business or financial relationships with any Party to the arbitration. If possible, the arbitrator shall 360 have experience in the electric utility industry. Unless otherwise agreed, the arbitration shall be conducted in accordance with the American Arbitration Association's Commercial Arbitration Rules, then in effect. Any arbitration proceedings, decision or award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act of the United States, 9 U.S.C. Section 1 et seq. The location of any arbitration hereunder shall be in the District of Columbia. (b) The arbitration shall, if possible, be concluded not later than six (6) months after the date that it is initiated. The arbitrator shall be authorized only to interpret and apply the provisions of this Agreement or any related agreements entered into under this Agreement and shall have no power to modify or change any of the above in any manner. The arbitrator shall have no authority to award punitive or multiple damages or any damages inconsistent with this Agreement. The arbitrator shall, within thirty (30) days of the conclusion of the hearing, unless such time is extended by agreement of the Parties, notify the Parties in writing of his or her decision, stating his or her reasons for such decision and separately listing his or her findings of fact and conclusions of law. The decision of the arbitrator rendered in such a proceeding shall be final and binding on the Parties. Judgment on the award may be entered upon it in any court having jurisdiction. 12.3 FERC Dispute Resolution. Nothing in this Agreement shall preclude, or be construed to preclude, any Party from filing a petition or complaint with FERC with respect to any arbitrable claim over which FERC has jurisdiction. In such case, the other Party may request FERC to reject or to waive jurisdiction. If FERC rejects or waives jurisdiction with respect to all or a portion of the claim, the portion of the claim not so accepted by FERC shall be resolved through arbitration, as provided in this Agreement. To the extent that FERC asserts or accepts jurisdiction over the claim, the decision, finding of fact or order of FERC shall be final and binding, subject to judicial review under the Federal Power Act, and any arbitration proceedings that may have commenced with respect to the claim prior to the assertion or acceptance of jurisdiction by FERC shall be terminated. ARTICLE 13 REPRESENTATIONS 13.1 Representations of Pepco. Pepco hereby represents and warrants to Generator as follows: (a) Incorporation. Pepco is a corporation duly organized, validly existing and in good standing under the laws of the District of Columbia and the Commonwealth of Virginia, and has all requisite corporate power and authority to 361 own, lease and operate its material assets and properties and to carry on its business as now being conducted. (b) Authority. Pepco has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery by Pepco of this Agreement and the consummation by Pepco of the transactions contemplated hereunder have been duly and validly authorized by the Board of Directors of Pepco or by a committee thereof to whom such authority has been delegated and no other corporate proceedings on the part of Pepco are necessary to authorize this Agreement or the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Pepco and, assuming that this Agreement constitutes a valid and binding agreement of Generator, constitutes a valid and binding agreement of Pepco, enforceable by Pepco in accordance with its terms. (c) Consents and Approvals; No Violation. (i) Neither the execution and delivery of this Agreement by Pepco nor performance by Pepco of its obligations hereunder will (A) conflict with or result in any breach of any provision of the Certificate of Incorporation or By-laws of Pepco, (B) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation to which Pepco or any of its subsidiaries is a party or by which any of their respective assets may be bound or (C) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Pepco, or any of its assets, except in the case of clauses (B) and (C) for such failures to obtain a necessary consent, defaults and violations which would not, individually or in the aggregate, have a material adverse effect on the ability of Pepco to discharge its obligations under this Agreement (a "Pepco Material Adverse Effect"). (ii) No declaration, filing or registration with, or notice to, or authorization, consent or approval of any governmental authority is necessary for performance by Pepco of its obligations hereunder, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made would not, individually or in the aggregate, have a Pepco Material Adverse Effect. 13.2 Representations of Generator. Generator hereby represents and warrants to Pepco as follows: 362 (a) Incorporation. Generator is a [corporation] duly [incorporated], validly existing and in good standing under the laws of the State of __________, and has all requisite [corporate] power and authority to own, lease and operate its material assets and properties and to carry on its business as now being conducted. (b) Authority. Generator has all necessary [corporate] power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery by the Generator of this Agreement and the consummation by Generator of the transactions contemplated hereby have been duly and validly authorized the [Board of Directors] of Generator or by a committee thereof to whom such authority has been delegated and no other [corporate] proceedings on the part of Generator are necessary to authorize this Agreement or the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Generator and, assuming that this Agreement constitutes a valid and binding agreement of Pepco, constitutes a valid and binding agreement of Generator, enforceable against Generator in accordance with its terms. (c) Consents and Approvals. (i) Neither the execution and delivery of this Agreement by Generator nor performance by Generator of its obligations hereunder will (A) conflict with or result in any breach of any provision of the [Certificate of Incorporation or By-laws] of Generator, (B) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation to which Generator or any of its subsidiaries is a party or by which any of their respective assets may be bound or (C) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Generator, or any of its assets, except in the case of clauses (B) and (C) for such failures to obtain a necessary consent, defaults and violations which would not, individually or in the aggregate, have a material adverse effect on the ability of Generator to discharge its obligations under this Agreement (a "Generator Material Adverse Effect"). (ii) No declaration, filing or registration with, or notice to, or authorization, consent or approval of any Governmental Authority is necessary for performance by Generator of its obligations hereunder, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made would not, individually or in the aggregate, have a Generator Material Adverse Effect. ARTICLE 14 ASSIGNMENT/CHANGE IN CORPORATE IDENTITY 14.1 Assignment. (a) Except as set forth in this Article 14, neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned by either Party hereto, without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. (b) Subject to Section 14.2, upon ten (10) days prior written notice to Generator, Pepco may assign this Agreement, and Pepco's rights, interests and obligations hereunder, to (i) an Affiliate of Pepco that owns all or part of Pepco's Transmission System or (ii) an independent system operator or independent transmission company whose control over all or part of Pepco's Transmission System has been approved by the FERC. (c) Subject to Section 14.2, Generator may (a) assign any of its rights and obligations hereunder to an Affiliate to the extent necessary for the Generator to qualify as an exempt wholesale generator under Section 32 of the Public Utility Holding Company Act of 1935, as amended, and (b) assign, transfer, pledge or otherwise dispose of its rights and interests hereunder to a trustee, lending institution, or other Person for the purposes of financing or refinancing the Station, including upon or pursuant to the exercise of remedies under such financing or refinancing, or by way of assignments, transfers, conveyances of dispositions in lieu thereof; provided, however, that no such assignment shall relieve or in any way discharge Generator from the performance of its duties and obligations under this Agreement. Pepco agrees to execute and deliver, at Generator's expense, such documents as may be reasonably necessary to accomplish any such assignment, transfer, conveyance, pledge or disposition of rights hereunder for purposes of the financing or refinancing of the Facility, so long as Pepco's rights under this Agreement are not thereby altered, amended, diminished or otherwise impaired. (d) Subject to Section 14.2, either Party may assign this Agreement to a successor to all or substantially all of the assets of such Party by way of merger, consolidation, sale or otherwise, provided such successor assumes in writing and becomes liable for all of such Party's duties and obligations hereunder. 14.2 Release of Rights and Obligations. No assignment, transfer, conveyance, pledge or disposition of rights, interests, duties or obligations under this Agreement by a Party shall relieve that Party from liability and financial responsibility for the performance thereof after any such transfer, assignment, 363 conveyance, pledge or disposition unless and until (i) the transferee or assignee shall agree in writing to assume the obligations and duties of that Party under this Agreement and to impose such obligations on subsequent permitted transferees and assignees and (ii) the non-assigning Party has consented in writing to such assumption and to a release of the assigning Party from such liability, such consent not to be unreasonably withheld or delayed. 14.3 Change in Corporate Identity. If Generator terminates its existence as a [corporate] entity by merger, acquisition, sale, consolidation or otherwise, or if all or substantially all of Generator's assets are transferred to another person or business entity without complying with this Article 14, Pepco shall have the right, enforceable in a court of competent jurisdiction, to enjoin Generator's successor from using the Station in any manner that does not comply with the requirements of this Agreement or that impedes Pepco's ability to carry on its ongoing business operations. 14.4 Successors and Assigns. This Agreement and all of the provisions hereof are binding upon, and inure to the benefit of, the Parties and their respective successors and permitted assigns. ARTICLE 15 SUBCONTRACTORS Nothing in this Agreement shall prevent the Parties from utilizing the services of subcontractors as they deem appropriate, provided, however, the Parties agree that, where applicable, all said subcontractors shall comply with the terms and conditions of this Agreement. The creation of any subcontract relationship shall not relieve the hiring Party of any of its obligations under this Agreement. Each Party shall be fully responsible to the other Party for the acts and/or omission of any subcontractor it hires as if no subcontract had been made. Any obligation imposed by this Agreement upon the Parties, where applicable, shall be equally binding upon and shall be construed as having application to any subcontractor. The Parties shall each be liable for, indemnify, and hold harmless the other Party, their Affiliates and their officers, directors, employees, agents, servants, and assigns from and against any and all claims, demands, or actions, from the other Party's subcontractors; and shall pay all costs, expenses and legal fees associated therewith and all judgments, decrees and awards rendered therein. No subcontractor is intended to be or shall be deemed a third-party beneficiary of this Agreement. ARTICLE 16 NOTICES 16.1 Emergency Notices. At or prior to the Effective Date, each Party shall indicate to the other Party, by notice, the appropriate person during each 364 eight-hour work shift to contact in the event of an emergency, a scheduled or forced interruption or reduction in services. The notice last received by a Party shall be effective until modified in writing by the other Party. 16.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given (as of the time of delivery or, in the case of a telecopied communication, of confirmation) if delivered personally, telecopied (which is confirmed) or sent by overnight courier (providing proof of delivery) to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice): if to Pepco , to: Potomac Electric Power Company 1900 Pennsylvania Avenue, N.W. Washington, D.C. 20068 Telecopier: (202) ________________ Attention: ___________________ if to Generator, to: c/o Southern Energy, Inc. 900 Ashwood Parkway Suite 500 Atlanta, Georgia 30338-4780 Telecopier: (770) 821-6575 Attention: ARTICLE 17 AMENDMENTS 17.1 Amendments. Except as set forth in Sections 2.2 and 17.2 of this Agreement, this Agreement may be amended, modified, or supplemented only by written agreement of both Pepco and Generator. 17.2 FERC Proceedings (a) Pepco may unilaterally make application to FERC under Section 205 of the Federal Power Act and pursuant to the FERC's rules and regulations promulgated thereunder for, or exercise any rights it may have under Section 206 of the Federal Power Act and the regulations thereunder with respect to, a change in any rates, terms and conditions, charges, classification of service, rule or regulation for any services Pepco provides under this Agreement over which FERC has jurisdiction. 365 (b) Generator may exercise its rights under Section 205 or 206 of the Federal Power Act and pursuant to FERC's rules and regulations promulgated thereunder with respect to any rate, term, condition, charge, classification of service, rule or regulation for any services provided under this Agreement over which FERC has jurisdiction. ARTICLE 18 MISCELLANEOUS PROVISIONS 18.1 Waiver. Except as otherwise provided in this Agreement, any failure of a Party to comply with any obligation, covenant, agreement, or condition herein may be waived by the Party entitled to the benefits thereof only by a written instrument signed by the Party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement, or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. 18.2 Labor Relations. The Parties agree to immediately notify the other Party, verbally and then in writing, of any labor dispute or anticipated labor dispute which may reasonably be expected to affect the operations of the other Party. 18.3 No Third Party Beneficiaries. Nothing in this Agreement is intended to confer upon any other person except the Parties any rights or remedies hereunder or shall create any third party beneficiary rights in any person. No provision of this Agreement shall create any rights in any such persons in respect of any benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement except as expressly provided for thereunder. 18.4 Governing Law This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland (regardless of the laws that might otherwise govern under applicable principles of conflicts of law). 18.5 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 18.6 Interpretation. When a reference is made in this Agreement to an Article, Section, Schedule or exhibit, such reference shall be to an Article or Section of, or Schedule or exhibit to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference 366 purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation" or equivalent words. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Unless otherwise expressly stated otherwise herein, the word "day" shall mean any calendar day including weekends and holidays. Any agreement, instrument, statute, regulation, rule or order defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument, statute, regulation, rule or order as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes, regulations, rules or orders) by succession of comparable successor statutes, regulations, rules or orders and references to all attachments thereto and instruments incorporated therein. References to a person are also to its permitted successors and assigns. Each Party acknowledges that it has been represented by counsel in connection with the review and execution of this Agreement, and, accordingly, there shall be no presumption that this Agreement or any provision hereof be construed against the Party that drafted this Agreement. 18.7 Jurisdiction and Enforcement. Each of the Parties irrevocably submits to the exclusive jurisdiction of the federal and state courts of the State of Maryland for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each of the Parties agrees to commence any action, suit or proceeding relating hereto either in the federal courts of the State of Maryland or, if such suit, action or proceeding may not be brought in such court for jurisdictional reasons, in the state courts of the State of Maryland. Each of the Parties further agrees that service of process, summons, notice or document by hand delivery or U.S. registered mail at the address specified for such Party in Section 16.2 (or such other address specified by such Party from time to time pursuant to Section 16.2) shall be effective service of process for any action, suit or proceeding brought against such Party in any such court. Each of the Parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in the federal and state courts of the State of Maryland and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 367 18.8 Entire Agreement. This Agreement, Asset Sale Agreement, the Confidentiality Agreement and the Ancillary Agreements including the Exhibits, Schedules, documents, certificates and instruments referred to herein or therein and other contracts, agreements and instruments contemplated hereby or thereby, embody the entire agreement and understanding of the Parties in respect of the transactions contemplated by this Agreement. There are no restrictions, promises, representations, warranties, covenants or undertakings other than those expressly set forth or referred to herein or therein. This Agreement, the Asset Sale Agreement and the Ancillary Agreements supersede all prior agreements and understandings between the Parties with respect to the transactions contemplated by this Agreement other than the Confidentiality Agreement. 18.9 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. 18.10 Independent Contractor Status. Nothing in this Agreement shall be construed as creating any relationship between Pepco and Generator other than that of independent contractors. 18.11 Conflicts. Except with respect to the amendments, indemnification, liability, default and remedies provisions contained herein or as otherwise expressly provided herein, in the event of any conflict or inconsistency between the terms of this Agreement and the terms of the Asset Sale Agreement, the terms of the Asset Sale Agreement shall prevail. 368 IN WITNESS WHEREOF, Pepco and Generator have caused this Interconnection Agreement (Chalk Point) to be signed by their respective duly authorized officers as of the date first above written. POTOMAC ELECTRIC POWER COMPANY By: ---------------------------- Name: Title: [GENERATOR] By: ---------------------------- Name: Title: 369 SCHEDULE A DEFINITIONS Part A. Capitalized terms not defined in the body of the Agreement shall have the meaning set forth in Part A of this Schedule A. (Part B of this Schedule A sets forth capitalized terms defined within the Agreement.) (1) "Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. (2) "Ancillary Agreements" has the meaning set forth in the Asset Sale Agreement. (3) "Closing" has the meaning set forth in the Asset Sale Agreement. (4) "Confidentiality Agreement" has the meaning set forth in the Asset Sale Agreement. (5) "Costs" means all costs, including without limitation, any Taxes, costs of acquiring real property, costs and fees for permits, franchises, licenses and regulatory approvals except to the extent that such costs are allocated to a party or parties other than the Generator by the PJM Interconnection LLC or otherwise under the PJM Tariff or PJM Agreement. (6) "Easement" means the Easement Agreement dated __________, 2000, between the Parties with respect to the Station. (7) "Environmental Laws" means all former, current and future federal, state, local and foreign laws (including common law), treaties, regulations, rules, ordinances, codes, decrees, judgments, directives or orders (including consent orders) and environmental permits, in each case, relating to pollution or protection of the environment or natural resources, including laws relating to Releases or threatened Releases, or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, arrangement for disposal, transport, recycling or handling, of Hazardous Substances. (8) "Emergency" means (a) with respect to Pepco, a condition or situation which Pepco, the PJM Interconnection LLC, the PJM System Operator or the Transmission Operator deem imminently likely to (i) endanger life or property, or (ii) adversely affect or impair the Transmission System, Pepco's electrical system or the electrical or transmission systems of others to which the Transmission System or Pepco's electrical system are directly or indirectly connected and (b) with respect to the Generator, a condition or situation which the Generator deems imminently likely to (i) endanger life or property, or (ii) adversely affect or impair the Station. (9) "FERC" means the Federal Energy Regulatory Commission or its successors. 370 (10) "Generating Facilities" means the Station and any additional generating plants, turbines or other generating facilities constructed by Generator after the Effective Date at the site of the Station. (11) "Generator" has the meaning set forth in the introductory paragraph of this Agreement and shall include its permitted successors and assigns. (12) "Generator Facilities" mean the equipment and facilities owned by the Generator but located on Pepco's property which are identified in Schedule B of this Agreement. (13) "Good Utility Practice" means any of the applicable practices, methods and acts. (a) required by FERC, NERC, MAAC, the PJM Interconnection LLC, the PJM System Operator, or the successor of any of them, whether or not the Party whose conduct is at issue is a member thereof, (b) required by applicable law or regulations, (c) required by the Pepco Interconnection Standards or the policies and standards of Pepco relating to emergency operations; (d) otherwise engaged in or approved by a significant portion of the electric utility industry during the relevant time period; which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with law, regulation, good business practices, reliability, safety, and expedition. Good Utility Practice is not intended to be limited to the optimum practice, method, or act to the exclusion of all others, but rather to be acceptable practices, methods, or acts generally accepted in the region. (14) "Hazardous Substances" means (i) any petrochemical or petroleum products, crude oil or any fraction thereof, ash, radioactive materials, radon gas, asbestos in any form, urea formaldehyde foam insulation or polychlorinated biphenyls, (ii) any chemicals, materials, substances or wastes defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "restricted hazardous materials," "extremely hazardous substances," "toxic substances," "contaminants" or "pollutants" or words of similar meaning and regulatory effect contained in any Environmental Law or (iii) any other chemical, material, substance or waste which is prohibited, limited or regulated by any Environmental Law. (15) "Interconnection Facilities" means those facilities or portions of facilities owned or operated by Pepco to provide Interconnection Service which shall include, but not be limited to (1) facilities the cost of which is reasonably allocated to the Interconnection Service provided to the Station, or (2) Attachment Facilities or Local Upgrade Facilities, as defined in the PJM Tariff, which are associated with the Interconnection Service and operated and maintained by Pepco. 371 (16) "Interconnection Service" means the services provided by Pepco which are necessary to connect the Station to the Transmission System for parallel operation of the Station and to enable Generator to transmit the energy and ancillary services produced by the Station to the Transmission System and receive Station energy service and ancillary services, including blackstart power, from the Generator's supplier. (17) "MAAC" means the Mid-Atlantic Area Council, a reliability council under Section 202 of the Federal Power Act established pursuant to the MAAC Agreement dated August 1, 1994, or any successor thereto. (18) "Maintain" means construct, reconstruct, install, inspect, repair, replace, operate, patrol, maintain, use, modernize, expand, upgrade, or other similar activities. (19) "MDPSC" means the Maryland Public Service Commission or any successor agency thereto. (20) "NERC" means North American Electric Reliability Council or any successor thereto. (21) "Pepco" has the meaning set forth in the introductory paragraph of this Agreement and shall include its permitted successors or assigns. (22) "Pepco Facilities" means the equipment and facilities owned by Pepco but located on Generator's property which are identified in Schedule B of this Agreement. (23) "Pepco Interconnection Standards" means Pepco's Interconnection and Parallel Operating Guidelines as amended, modified or replaced from time to time. A copy of the existing Pepco Interconnection Standards is attached hereto as Schedule E. (24) "Point of Interconnection" means each ownership point of demarcation set forth in Schedule C where capacity, energy and ancillary services are transferred between the Station and the Transmission System. (25) "Pepco Transmission Facilities" means those transmission, substation, and communication facilities and related equipment, including the Interconnection Facilities, and any additions, modifications or replacements thereto, that are utilized to provide Interconnection Service to the Station. (26) "PJM" means the Pennsylvania New Jersey-Maryland interconnected power pool operated under the PJM Agreement and any successor thereto including any regional transmission operator, independent system operator, transco, or any other independent system administrator that possesses operational or planning control over the Transmission System. (27) "PJM Agreement" means the Amended and Restated Operating Agreement of the PJM Interconnection LLC dated as of June 2, 1997. 372 (28) "PJM Control Area" shall mean the control area recognized by NERC as the PJM Control Area. (29) "PJM Interconnection LLC" means the independent system operator of the PJM Control Area pursuant to the PJM Operating Agreement and the PJM Tariff. (30) "PJM Generator Connection Agreement" means the interconnection agreement entered into between the Generator and the PJM Interconnection LLC pursuant to the PJM Tariff with respect to the interconnection of the Station and the Transmission System. (31) "PJM Reliability Agreement" means the Reliability Assurance Agreement dated June 2, 1997 among the load serving entities of PJM. (32) "PJM Requirements" means the rules, regulations or other requirements of PJM or MAAC contained in or adopted pursuant to the PJM Agreement, the PJM Tariff or the PJM Reliability Agreement which are applicable to Pepco, with respect to the Transmission System or the Interconnection Service, and the Generator with respect to the Generating Facilities. (33) "PJM System Operator" shall mean the PJM Interconnection LLC, energy control center staff responsible for central dispatch as provided in the PJM Agreement. (34) "PJM Tariff" means the PJM Open Access Transmission Tariff providing transmission service within the PJM Control Area. (35) "Qualified Personnel" means individuals who possess any required licenses and are trained for their positions and duties by Generator and/or Pepco pursuant to Good Utility Practice. (36) "Release" means any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture. (37) "Revenue Meters" means all MWh and MVArh meters, pulse isolation relays, pulse conversion relays, transducers required by Pepco or the PJM Interconnection or PJM System Operator for billing or other purposes, and associated totalizing equipment and appurtenances and compensation required to measure the transfer of energy across the Point of Interconnection. (38) "SMECO CT" means the approximately 84 MW generating facility and related assets owned by the Southern Maryland Electric Cooperative, or its successors or assigns, which is located at or near the site of the Station. (39) "Station" means the Chalk Point Station as defined in the Asset Sale Agreement (excluding the SMECO CT). 373 (40) "Switching, Tagging, and Grounding Rules" means Pepco's switching, tagging and grounding rules as amended, modified or replace from time to time. A copy of the existing Switching Tagging and Grounding Rules is attached hereto as Schedule D. (41) "Taxes" means all taxes, surtaxes, charges, fees, levies, penalties or other assessments imposed by any United States federal, state, local or foreign taxing authority, including income taxes, excise, property, sales, transfer, franchise, special franchise, payroll, recording, withholding, social security or other taxes, in each case including any interest, penalties or additions attributable thereto. (42) "Transmission System" means the facilities owned, controlled, or operated by Pepco, for purposes of providing transmission service, including services under the PJM Tariff, and Interconnection Service. (43) "Transmission Operator" means the person, or persons designated by Pepco to coordinate the day to day interconnection of the Station with the Transmission System. Part B. The following terms have the meaning specified in the section of this Agreement set forth opposite to such term:
Term Agreement Reference Agreement Preamble Asset Sale Agreement Preamble Effective Date Section 2.1 Event of Default Section 8.1 Force Majeure Section 11.1 Initial Period Section 3.10 Operating Committee Section 3.20 Party or Parties Preamble Term Article 2
374 EXHIBIT F LOCAL AREA SUPPORT AGREEMENT BY AND BETWEEN POTOMAC ELECTRIC POWER COMPANY and ------------------------------------ Dated , 2000 -------------- 375 TABLE OF CONTENTS
Page ARTICLE I - DEFINITIONS 1 ARTICLE II - TERM; TERMINATION 1 2.1 - Term 1 2.2 - Termination 1 2.3 - Continuation 2 ARTICLE III - OPERATING REQUIREMENTS 2 3.1 - PJM; MAAC 2 3.2 - Obligations of Generator 2 3.3 - Violations 4 3.4 - Billing Procedures 4 ARTICLE IV - RETIREMENT OR REMOVAL FROM SERVICE OF THE FACILITY 5 4.1 - Conditions Precedent to Retirement or Removal 5 4.2 - Notice Requirement 5 4.3 - PJM Studies 6 4.4 - Termination Fee 6 ARTICLE V - REPRESENTATIONS OF THE PARTIES 7 5.1 - Representations of Pepco 7 5.2 - Representations of Generator 8 ARTICLE VI - DEFAULT 9 6.1 - Event of Default 9 6.2 - Remedies 9 6.3 - Additional Remedies 10 6.4 - Reimbursement for Replacement Costs 10 6.5 - Limitation of Liability 10 ARTICLE VII - ASSIGNMENT 11 7.1 - Assignment 11 7.2 - Release of Rights and Obligations 11 7.3 - Transfer of Facility 11 7.4 - Change in Corporate Identity 12 7.5 - Successors and Assigns 12 ARTICLE VIII - FORCE MAJEURE 12 8.1 - Force Majeure 12 8.2 - Definition of Force Majeure 12 8.3 - Force Majeure Procedures 12 ARTICLE IX - INDEMNIFICATION 13 9.1 - Generator's Indemnification 13 9.2 - Pepco's Indemnification 13 9.3 - Indemnification Procedures 13 9.4 - Survival 13 ARTICLE X - CONFIDENTIALITY 14 10.1 - Confidentiality Obligations of Pepco 14
376 10.2 - Confidentiality Obligations of Generator 14 10.3 - Remedies 15 ARTICLE XI - DISPUTE RESOLUTION 15 11.1 - Disputes 15 11.2 - Arbitration 15 11.3 - FERC Jurisdiction 16 ARTICLE XII - MISCELLANEOUS 16 12.1 - Amendment and Modification; Extension; Waiver 16 12.2 - Notices 16 12.3 - No Third Party Beneficiaries 17 12.4 - Independent Contractors 17 12.5 - Governing Law 18 12.6 - Jurisdiction and Enforcement 18 12.7 - Counterparts 18 12.8 - Interpretation 18 12.9 - Entire Agreement 19 12.10 - Severability 19 12.11 - Conflicts 19 12.12 - Further Assurances 19
377 LOCAL AREA SUPPORT AGREEMENT THIS LOCAL AREA SUPPORT AGREEMENT (as amended from time to time, this "Agreement") is made and entered into as of ___________, 2000 by and between Potomac Electric Power Company, a District of Columbia and Virginia corporation ("Pepco"), and ______________________ ("Generator"), a __________ [corporation]. Pepco and Generator are referred to individually as a "Party" and collectively as the "Parties." WITNESSETH: WHEREAS, Pepco and Generator have entered into an Asset Purchase and Sale Agreement, dated June 7, 2000 (as amended from time to time, the "Asset Sale Agreement"), for the sale by Pepco to Generator of the Facility (as defined herein); WHEREAS, Pepco requires local generation support from the Facility in order to maintain reliability of electric service in the local area of the Facility, including the reliable transmission and delivery of Energy (as defined herein) to loads connected radially to the Facility switchyard; and WHEREAS, the provisions of this Agreement are essential to maintaining the reliability of electric service in the local area of the Facility. NOW THEREFORE, in consideration of the mutual covenants, representations, warranties, and agreements contained herein, and intending to be legally bound hereby, the Parties hereto agree as follows: ARTICLE I DEFINITIONS Capitalized terms used in this Agreement shall have the respective meanings set forth in Appendix A hereto. ARTICLE II TERM; TERMINATION 2.1 Term. This Agreement shall become effective upon consummation of the Closing (the "Effective Date"). The Agreement shall continue in full force and effect for a term of twenty (20) years (the "Term") unless terminated earlier in accordance with Section 2.2. 2.2 Termination. Subject to any required regulatory approval, this Agreement may be terminated prior to the end of the Term: (a) by either Party pursuant to Section 6.2; or 378 (b) upon written notice by Pepco that Substitute Resources satisfactory to PJM and Pepco have become operational. 2.3 Continuation. The applicable provisions of this Agreement shall continue in effect after cancellation, termination or expiration hereof to the extent necessary to provide for final billings, billing adjustments and payments pertaining to liability and indemnification obligations arising from acts or events that occurred while this Agreement was in effect. ARTICLE III OPERATING REQUIREMENTS 3.1 PJM; MAAC. (a) From and after the Effective Date and for so long as PJM Interconnection LLC is the control area operator for the System, Generator shall maintain membership in good standing in PJM and MAAC and shall execute, deliver and perform all agreements required by PJM and MAAC, including the PJM Agreement and the MAAC Agreement. (b) If PJM Interconnection LLC ceases to be the control area operator for the System, then Generator shall be obligated to enter into comparable operating arrangements with any succeeding control area operator for the System, or with Pepco, to achieve the same local area reliability goals, subject to equivalent terms, set forth in this Agreement. 3.2 Obligations of Generator. Provided the Facility's switchyard remains in the PJM Control Area, Generator shall operate and maintain the Facility in the following manner: (a) Operation and Compensation. (i) Generator shall make the Facility Available and shall follow the generation unit commitment procedures and dispatch orders (including requests for Ancillary Services) of PJM Interconnection LLC and, in order to maintain local area reliability as provided in Section 3.2(a)(iii) below, of Pepco. Generator shall make the Facility Available and shall follow such generation unit commitments and dispatch orders (including requests for Ancillary Services) even if operation of the Facility is not required for energy sales scheduled by Generator. (ii) When PJM Interconnection LLC orders a change in operation of the Facility for any reason, including local area reliability, PJM compensation rules will apply. Pepco will have no obligation under this Agreement to compensate Generator for such operation. (iii) Pepco may order operation and dispatch level of the Facility for local area reliability in accordance with Pepco Transmission Procedures No. 28 and No. 29 at any time when PJM Interconnection LLC has not ordered such operation. When Pepco 379 orders operation of the Facility for local area reliability in accordance with Pepco Transmission Procedures No. 28 and No. 29 at a time when PJM Interconnection LLC has not ordered such operation, Generator shall schedule the appropriate operation of the Facility in accordance with PJM procedures. Pepco shall pay Generator the excess, if any, of (A) the compensation Generator would have received if PJM Interconnection LLC had ordered such operation for local area reliability minus (B) the compensation actually received by Generator from PJM Interconnection LLC for such operation. (iv) Generator shall not retire or indefinitely remove from service the Facility or any of its Units except as permitted pursuant to Article IV. Until the retirement or indefinite removal from service of the Facility or any of its Units in accordance with Article IV, Generator shall (A) maintain the capacity of each Unit in accordance with Good Utility Practice and (B) shall otherwise operate and maintain the Facility, or cause the Facility to be operated and maintained, in accordance with Good Utility Practice. (v) Notwithstanding any provision of this Section 3.2(a) to the contrary, in the event Abnormal Conditions exist for any period of twenty-one (21) consecutive days, then during the period commencing on the twenty-first (21st) day of such Abnormal Conditions and ending with the termination of such Abnormal Conditions, Generator must use best efforts to comply with Pepco Transmission Procedure No. 28 pursuant to Sections 3.2(a)(i) and 3.2(a)(iii). (b) Maintenance. Generator shall abide by PJM rules and cooperate with PJM Interconnection LLC and Pepco in scheduling maintenance of the Facility and each Unit and any other equipment outages affecting the operation of the Facility or any Unit. (c) Notification of Pepco. (i) Generator shall promptly notify Pepco of any condition, incident or occurrence that will, or is reasonably likely to, cause Generator to fail to provide Energy or Ancillary Services during such periods and in such amounts as required by Section 3.2(a), along with the anticipated duration of the condition, incident or occurrence. Such notice shall not excuse performance by Generator of any of its obligation hereunder nor shall it deprive Pepco of any of its remedies under this Agreement. (ii) Generator shall, unless specifically waived by Pepco in writing, (A) promptly provide Pepco copies of any written correspondence, notices and agreements and arrangements between Generator and PJM Interconnection LLC and/or MAAC and (B) permit Pepco to attend any meetings or discussions between Generator and PJM Interconnection LLC and/or MAAC, in each case to the extent any such correspondence, notices, agreements, arrangements, meetings or discussions concern any operation, outage or shutdown of the Facility or any Unit that has or is reasonably expected to have an impact on Pepco's local area reliability. 380 3.3 Violations. (a) Normal Condition Violation. If Pepco Sheds Load as a result of a Normal Condition Violation, Generator shall pay to Pepco an amount equal to one million dollars ($1,000,000) for each such violation. (b) Abnormal Condition Violation. (i) If Generator commits an Abnormal Condition Violation, Generator shall pay to Pepco an amount equal to one thousand dollars per megawatt hour ($1,000/MWh) for the difference (whether positive or negative) in any hour during such Abnormal Condition Violation between the Target Output and the Actual Output. (ii) In addition to any amount payable by Generator pursuant to Section 3.3(b)(i), if Generator has supplied Excess Output during an Abnormal Condition Violation, then Generator shall pay to Pepco an amount equal to all revenues derived by Generator from supplying such Excess Output. (iii) Notwithstanding any provision of this Section 3.3(b) to the contrary, in the event Abnormal Conditions exist for any period of twenty-one (21) consecutive days, then Generator shall not be required to pay Pepco the amounts otherwise due under Section 3.3(b)(i) or 3.3(b)(ii) for the period commencing on the twenty-first (21st) day of such Abnormal Conditions and ending with the termination of such Abnormal Conditions. (c) All amounts payable under this Section 3.3 shall be paid in accordance with the billing procedures set forth in Section 3.4. (d) The Parties agree that the foregoing payment provisions are an integral part of this Agreement and forms a portion of the consideration for executing the Asset Sale Agreement; that the amounts set forth in this Section 3.3 represent a reasonable estimate of the damages incurred by Pepco for a Normal Condition Violation and an Abnormal Condition Violation; that the payment by Generator of such amounts is an appropriate remedy; and that such payments constitute liquidated damages and not a forfeiture or penalty. Generator irrevocably and unconditionally waives any claim that these payments are or may be unenforceable as to Generator. 3.4 Billing Procedures. (a) Within ten (10) calendar days after the first day of each month immediately following the month in which one or more Transaction Days have occurred, Generator shall provide to Pepco a written invoice for any payments due to Generator from Pepco pursuant to Section 3.2(a)(iii). Pepco shall submit invoices to Generator whenever necessary under this Agreement. (b) Each invoice shall (i) delineate the month in which the Services were provided, (ii) fully describe the Services rendered, (iii) be itemized to reflect the Services 381 performed or provided, and (iv) provide reasonable detail as to the calculation of the amount involved. (c) All invoices shall be paid within fifteen (15) calendar days of receipt, but not earlier than the 25th day of the month in which the invoice is rendered. All payments shall be made in immediately available funds payable to the other Party, by wire transfer to a bank account designated in writing by such Party. Payment of invoices shall not relieve the paying Party from any responsibilities or obligations it has under this Agreement, nor shall such payment constitute a waiver of any claims arising hereunder. (d) To the extent that, for any billing period, Generator is obligated to pay to Pepco amounts due and calculated pursuant to Section 3.3, Pepco may use such amounts as a set-off against any amounts owed by Pepco to Generator under Section 3.2(a)(iii). If such amounts due and calculated pursuant to Section 3.3 exceed the amounts due to Generator under Section 3.2(a)(iii) for any billing period, Pepco shall submit an invoice to Generator and Generator shall pay such invoice within fifteen (15) calendar days of receipt. (e) In the event of a billing dispute hereunder, (i) Generator shall continue to provide Services in accordance with the terms of this Agreement and (ii) the Party required to make payments hereunder shall pay to the other Party all invoiced amounts, net of any set-offs permitted under Section 3.4(d), that are not in dispute. ARTICLE IV RETIREMENT OR REMOVAL FROM SERVICE OF THE FACILITY 4.1 Conditions Precedent to Retirement or Removal. Prior to the retirement or indefinite removal from service of the Facility or any of its Units, Generator shall: (i) comply with all applicable MAAC requirements in connection with such retirement or indefinite removal from service; (ii) if applicable, enter into an agreement with PJM Interconnection LLC providing for studies relating to the impact of the retirement or indefinite removal from service on the Facility, as more particularly described in Section 4.3 below; and (iii) either (A) pay any applicable termination fee, as more particularly described in Section 4.4 below, or (B) provide (at Generator's expense) substitute resources satisfactory to PJM and Pepco for the remaining term of the Agreement to maintain the reliability of the Facility (the "Substitute Resources"). 4.2 Notice Requirement. Generator shall not be permitted to shut down the Facility or applicable Unit until the later of (x) the date specified by Generator in a written notice to PJM Interconnection LLC and Pepco indicating Generator's intent to shut down the Facility or Unit, such notice to be provided at least five (5) years prior to the date of shutdown (the "Termination Notice") and (y) the date on which PJM notifies Generator in writing that transmission reinforcements or other appropriate measures necessitated by the shutdown are in commercial operation. PJM Interconnection LLC may reduce or eliminate the five (5) year notice requirement if PJM Interconnection LLC determines, following consideration of Generator's commitment to provide Substitute Resources and other applicable factors, that the reliability of the PJM Control Area no longer requires 382 such advance notice. In addition to PJM's determination, Generator must obtain Pepco's consent to reduce or eliminate the advance notice requirement, such consent not to be unreasonably withheld. 4.3 PJM Studies. In the event Generator does not intend to provide Substitute Resources, Generator shall enter into an agreement with PJM Interconnection LLC to perform a system impact study and, if indicated by the system impact study, a facilities study, of the proposed retirement or indefinite removal from service of the Facility or applicable Unit in order to determine the PJM transmission additions or upgrades required, if any, to accommodate such retirement or indefinite removal from service. Alternatively, if Generator does intend to provide Substitute Resources, Generator shall (i) commission a study to evaluate the feasibility of the proposed Substitute Resources and (ii) at the request of PJM Interconnection LLC, enter into an agreement with PJM Interconnection LLC to perform any system impact and facilities studies required by PJM Interconnection LLC. Generator shall pay all costs and deposits required in connection with the performance of any such studies consistent with Part IV of the PJM Tariff. 4.4 Termination Fee. Based on the results of the studies required by PJM Interconnection LLC, PJM Interconnection LLC may determine that certain transmission system additions or upgrades are necessary to accommodate the retirement or indefinite removal from service of the Facility or applicable Unit. As a termination fee (the "Termination Fee"), Generator shall contribute to the transmission owner(s) constructing the additions or upgrades (through PJM or directly), an amount equal to that portion of the installed cost of such additions or upgrades calculated as follows: (i) if the Termination Notice specifies a retirement or indefinite removal from service date which is prior to the sixth anniversary of the Closing Date, the portion shall be 100%; (ii) if the specified retirement or indefinite removal from service date is on or after the sixth anniversary but prior to the seventh anniversary of the Closing Date, the portion shall be 80%; (iii) if the specified retirement or indefinite removal from service date is on or after the seventh anniversary but prior to the eighth anniversary of the Closing Date, the portion shall be 60%; (iv) if the specified retirement or indefinite removal from service date is on or after the eighth anniversary but prior to the ninth anniversary of the Closing Date, the portion shall be 40%; (v) if the specified retirement or indefinite removal from service date is on or after the ninth anniversary but prior to the tenth anniversary of the Closing Date, the portion shall be 20%; and (vi) if the specified retirement or indefinite removal from service date is on or after the tenth anniversary of the Closing Date, Generator shall have no obligation under 383 this Agreement to reimburse PJM Interconnection LLC for the cost of the additions and upgrades found necessary by PJM Interconnection LLC. ARTICLE V REPRESENTATIONS OF THE PARTIES 5.1 Representations of Pepco. Pepco hereby represents and warrants to Generator as follows: (a) Incorporation. Pepco is a corporation duly incorporated, validly existing and in good standing under the laws of the District of Columbia and Commonwealth of Virginia, and has all requisite corporate power and authority to own, lease and operate its material assets and properties and to carry on its business as now being conducted. (b) Authority. Pepco has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery by Pepco of this Agreement and the consummation by Pepco of the transactions contemplated hereby have been duly and validly authorized by the Board of Directors of Pepco or by a committee thereof to whom such authority has been delegated and no other corporate proceedings on the part of Pepco are necessary to authorize this Agreement or the transactions contemplated hereby. The Agreement has been duly and validly executed and delivered by Pepco and, assuming that this Agreement constitutes a valid and binding agreement of Generator, constitutes a valid and binding agreement of Pepco, enforceable against Pepco in accordance with its terms. (c) Consents and Approvals; No Violation. (i) Neither the execution and delivery of this Agreement by Pepco nor performance by Pepco of its obligations hereunder will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or By-laws of Pepco, (ii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation to which Pepco or any of its subsidiaries is a party or by which any of their respective assets may be bound or (iii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Pepco, or any of its assets, except in the case of clauses (ii) and (iii) for such failures to obtain a necessary consent, defaults and violations which would not, individually or in the aggregate, have a material adverse effect on the ability of Pepco to discharge its obligations under this Agreement (a "Pepco Material Adverse Effect"). (ii) No declaration, filing or registration with, or notice to, or authorization, consent or approval of any Governmental Authority is necessary for performance by Pepco of its obligations hereunder, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made would not, individually or in the aggregate, have a Pepco Material Adverse Effect. 384 5.2 Representations of Generator. Generator represents and warrants to Pepco as follows: (a) Incorporation. Generator is a [corporation] duly [incorporated], validly existing and in good standing under the laws of the State of ______________ and has all requisite [corporate] power and authority to own, lease and operate its material assets and properties, including the Facility, and to carry on its business as now being conducted. (b) Authority. Generator has all necessary [corporate] power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery by Generator of this Agreement and the consummation by Generator of the transactions contemplated hereby have been duly and validly authorized by the [Board of Directors] of Generator or by a committee thereof to whom such authority has been delegated and no other [corporate] proceedings on the part of Generator are necessary to authorize this Agreement or the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Generator and, assuming that this Agreement constitutes a valid and binding agreement of Pepco, constitutes a valid and binding agreement of Generator, enforceable against Generator in accordance with its terms. (c) Consents and Approvals; No Violation. (i) Neither the execution and delivery of this Agreement by Generator nor performance by Generator of its obligations hereunder will (i) conflict with or result in any breach of any provision of the [Certificate of Incorporation or By-laws] of Generator, (ii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation to which Generator or any of its subsidiaries is a party or by which any of their respective assets may be bound or (iii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Generator, or any of its assets, except in the case of clauses (ii) and (iii) for such failures to obtain a necessary consent, defaults and violations which would not, individually or in the aggregate, have a material adverse effect on the ability of Generator to discharge its obligations under this Agreement (a "Generator Material Adverse Effect"). (ii) No declaration, filing or registration with, or notice to, or authorization, consent or approval of any Governmental Authority is necessary for performance by Generator of its obligations hereunder, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made would not, individually or in the aggregate, have a Generator Material Adverse Effect. 385 ARTICLE VI DEFAULT 6.1 Event of Default. Unless excused by Force Majeure, each of the following events shall constitute an event of default (an "Event of Default") under this Agreement: (a) The failure by a Party to pay any amount due hereunder within thirty (30) days after receipt of written notice of nonpayment by the other Party, unless the payment of such amount is disputed in good faith, in which event Section 3.4(e) and Article XI shall apply; (b) A Party's breach of any material term or condition of this Agreement, including but not limited to any material breach of a representation, warranty or covenant made in this Agreement which, after receiving written notice of the breach from the non-breaching Party (such notice to set forth in reasonable detail the nature of the default and, where known and if applicable, the steps necessary to cure such default), (i) the breaching Party fails to cure the default, if curable, within thirty (30) days following receipt of the notice or (ii) if such default is of such a nature that it cannot be cured within thirty (30) days following receipt of such notice, the breaching Party fails within such thirty (30) days to commence the necessary cure and fails at any time thereafter diligently and continuously to prosecute such cure to completion, provided that the cure is completed no later than one hundred eighty (180) days after receipt of the default notice; provided, that no notice or cure period shall be applicable with respect to any breach by Generator of Section 3.2(a)(v); (c) The appointment of a receiver or liquidator or trustee for either Party, and such receiver, liquidator or trustee is not discharged within sixty (60) days; (d) The entry of a decree adjudicating a Party as bankrupt or insolvent, and such decree is continued undischarged and unstayed for a period of sixty (60) days; or (e) The filing of a voluntary or involuntary petition in bankruptcy under any provision of any federal or state bankruptcy law by a Party or against it, and, with respect to an involuntary petition in bankruptcy, such petition continues undischarged and unstayed for a period of sixty (60) days. 6.2 Remedies. Upon the occurrence of an Event of Default, the non-defaulting Party may (i) exercise all such rights and remedies as may be available to it at law or equity including seeking to recover damages caused by such Event of Default, subject to Section 6.5 of this Agreement, and/or (ii) terminate this Agreement. The Parties shall not discontinue the performance of any one or more of their obligations hereunder due to the occurrence of an Event of Default during the pendency of any dispute regarding such Event of Default and until such dispute is finally resolved. 386 6.3 Additional Remedies. Generator acknowledges and specifically agrees that its obligations under this Agreement are essential to ensure the reliability of the System; that breach of Generator's obligations may result in irreparable harm and damage to Pepco which cannot adequately be compensated by a monetary award; and that, as a consequence thereof, Pepco shall, in addition to any other remedy to which Pepco may be entitled by reason of Generator's breach of this Agreement, be entitled to seek and obtain temporary, preliminary and permanent injunctive relief from any court or Governmental Authority of competent jurisdiction restraining Generator from committing or continuing any breach of this Agreement. 6.4 Reimbursement for Replacement Costs. Upon an Event of Default, Generator shall be liable to Pepco for all costs reasonably incurred by Pepco as a direct result of Generator's failure to deliver Energy or Ancillary Services pursuant to the terms of this Agreement. Such costs shall include all reasonable costs associated with the procurement of replacement Energy, including Energy, Ancillary Services, demand, capacity, or reservation charges, any transmission costs associated with procuring such replacement Energy and any costs of constructing the additions or upgrades necessary to provide the Energy to be supplied by Generator hereunder. In addition to the amounts associated with the purchase of replacement Energy, Generator shall be liable for reasonable administrative and legal expenses incurred as a result of Generator's failure to perform. The Parties expressly agree that such amounts do not constitute liquidated damages and that the obligations of Generator under this Section 6.4 shall survive and continue in full force and effect regardless of whether this Agreement expires or terminates or is canceled, surrendered or completed. 6.5 Limitation of Liability. Except as provided in Sections 3.3, 4.4 and 6.4, neither Party nor their respective officers, directors, agents, employees, parents, Affiliates, successors, assign, contractors or subcontractors shall be liable to the other Party or its shareholders, subsidiaries, Affiliates, officers, directors, agents, employees, successors, assigns, contractors or subcontractors for any claims, demands or suits for consequential, incidental, special, exemplary, punitive, indirect or multiple damages connected with or resulting from any breach of this Agreement (other than breach of Article IX), or any actions undertaken in connection with or related hereto or thereto, including any such damages which are based upon breach of contract, tort (including negligence and misrepresentation), breach of warranty, strict liability, statute, operation of law or any other theory of recovery. The foregoing shall not prevent any Party from recovering damages of the foregoing nature in a claim for indemnification hereunder for such damages asserted by a third party. 387 ARTICLE VII ASSIGNMENT 7.1 Assignment. (a) Except as set forth in Sections 7.1(b), 7.1(c) and 7.1(d), neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned by either Party hereto, without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. (b) Upon ten (10) days prior written notice to Generator, Pepco may assign this Agreement, and Pepco's rights, interests and obligations hereunder, to (i) an Affiliate of Pepco that owns all or part of Pepco's transmission system or (ii) an Independent System Operator or independent transmission company whose control over all or part of Pepco's transmission system has been approved by the FERC. (c) Generator may assign, transfer, pledge or otherwise dispose of its rights and interests hereunder to a trustee, lending institution, or other Person for the purposes of financing or refinancing the Facility, including upon or pursuant to the exercise of remedies under such financing or refinancing, or by way of assignments, transfers, conveyances of dispositions in lieu thereof; provided, however, that no such assignment or disposition shall relieve or in any way discharge Generator from the performance of its duties and obligations under this Agreement. Pepco agrees to execute and deliver, at Generator's expense, such documents as may be reasonably necessary to accomplish any such assignment, transfer, conveyance, pledge or disposition of rights hereunder for purposes of the financing or refinancing of the Facility, so long as Pepco's rights under this Agreement are not thereby altered, amended, diminished or otherwise impaired. (d) Either Party may assign this Agreement to a successor to all or substantially all of the assets of such Party by way of merger, consolidation, sale or otherwise, provided such successor assumes in writing and becomes liable for all of such Party's duties and obligations hereunder. 7.2 Release of Rights and Obligations. No assignment, transfer, conveyance, pledge or disposition of rights, interests, duties or obligations under this Agreement by a Party shall relieve that Party from liability and financial responsibility for the performance thereof after any such transfer, assignment, conveyance, pledge or disposition unless and until (i) the transferee or assignee shall agree in writing to assume the obligations and duties of that Party under this Agreement and to impose such obligations on subsequent permitted transferees and assignees and (ii) the non-assigning Party has consented in writing to such assumption and to a release of the assigning Party from such liability, such consent not to be unreasonably withheld or delayed. 7.3 Transfer of Facility. Any direct or indirect assignment, sale, conveyance, lease, or other transfer by Generator of the Facility, any Unit or Generator's direct or indirect 388 owner thereof, whether by operation of law or otherwise, shall be null and void unless, with Pepco's prior written consent, which shall not be unreasonably withheld or delayed, the transferee of the Facility or such Unit assumes in writing all of Generator's right, title and interest in and to this Agreement, and all of Generator's rights, interests, duties and obligations hereunder. 7.4 Change in Corporate Identity. If Generator terminates its existence as a corporate entity by merger, acquisition, sale, consolidation or otherwise, or if all or substantially all of Generator's assets are transferred to another person or business entity without complying with this Article VII, Pepco shall have the right, enforceable in a court of competent jurisdiction, to enjoin Generator's successor from using the Facility in any manner that does not comply with the requirements of this Agreement or that impedes Pepco's ability to carry on its ongoing business operations. 7.5 Successors and Assigns. This Agreement and all of the provisions hereof are binding upon, and inure to the benefit of, the Parties and their respective successors and permitted assigns. ARTICLE VIII FORCE MAJEURE 8.1 Force Majeure. Notwithstanding anything in this Agreement to the contrary, the Parties shall be excused from performing their respective obligations hereunder and shall not be liable in damages or otherwise to the extent that a Party is unable to perform or is prevented from performing by an event of Force Majeure and has complied with Section 8.3. The Parties recognize and agree that an event of Force Majeure will not relieve any Party of its obligation to make payments when due hereunder. 8.2 Definition of Force Majeure. The term "Force Majeure" as used herein means those causes beyond the reasonable control of the Party affected, that, by the exercise of reasonable diligence, including Good Utility Practice, such Party is unable to prevent, avoid, mitigate, or overcome, including the following: any act of God, act of the public enemy, war, civil disturbance, insurrection, riot, fire (unless resulting from the fault or negligence of the Party asserting Force Majeure), storm or flood, lightning or explosion (unless resulting from the fault or negligence of the Party asserting Force Majeure) or any other cause of a similar nature beyond such Party's reasonable control. Neither the cost to operate and maintain the Facility nor any mechanical or electrical breakdown or failure of machinery or plant owned or operated by Generator due to any reason other than an event which itself constitutes an event of Force Majeure shall be deemed an event of Force Majeure. 8.3 Force Majeure Procedures. A Party shall not be entitled to rely on the occurrence of an event of Force Majeure as a basis for being excused from performance of its obligations under this Agreement unless the Party relying on the event or condition shall: (a) provide prompt written notice of such Force Majeure event to the other Party, including an estimation of its expected duration and the probable impact on the 389 performance of its obligations hereunder; (b) exercise all reasonable efforts in accordance with Good Utility Practice to continue to perform its obligations under this Agreement; (c) expeditiously take action to correct or cure the event or condition excusing performance; (d) exercise all reasonable efforts to mitigate or limit damages to the other Party; and (e) provide prompt notice to the other Party of the cessation of the event or condition giving rise to its excuse from performance. Subject to this Section 8.3, any obligation under this Agreement shall be suspended only to the extent caused by such Force Majeure and only during the continuance of any inability of performance caused by such Force Majeure but for no longer period. ARTICLE IX INDEMNIFICATION 9.1 Generator's Indemnification. Generator shall indemnify, hold harmless and defend Pepco, its Affiliates, and their respective officers, directors, employees, agents, contractors, subcontractors, invitees and successors, from and against any and all claims, demands, suits, obligations, payments, liabilities, costs, losses, judgments, damages and expenses (including the costs and expenses of any and all actions, suits, proceedings, assessments, judgments, settlements, and compromises relating thereto, reasonable attorneys' and expert fees and reasonable disbursements in connection therewith) for any loss or liability arising out of or relating to Generator's breach of any covenant, representation or warranty of Generator in this Agreement. 9.2 Pepco's Indemnification. Pepco shall indemnify, hold harmless and defend Generator, its Affiliates, and their respective officers, directors, employees, agents, contractors, subcontractors, invitees and successors, from and against any and all claims, demands, suits, obligations, payments, liabilities, costs, losses, judgments, damages and expenses (including the costs and expenses of any and all actions, suits, proceedings, assessments, judgments, settlements, and compromises relating thereto reasonable attorneys' and expert fees and reasonable disbursements in connection therewith) for any loss or liability arising out of or relating to Pepco's breach of any covenant, representation or warranty of Pepco in this Agreement. 9.3 Indemnification Procedures. Any Party seeking indemnification under this Agreement shall give the other Party notice of such claim within ninety (90) days of the later of the commencement of, or the Party's actual knowledge of, such claim or action. Such notice shall describe the claim in reasonable detail, and shall indicate the amount (estimated if necessary) of the claim that has been, or may be sustained by, said Party. The failure to provide such notice shall not excuse any Party from its continuing obligations hereunder; however, any claim shall be reduced by the damages resulting from such Party's delay or failure to provide such notice. Neither Party may settle or compromise any claim for which indemnification is sought under this Agreement without the prior consent of the other Party; provided, however, said consent shall not be unreasonably withheld or delayed. 9.4 Survival. The indemnification obligations of each Party under this Article IX for acts or occurrences that occur prior to expiration, termination, or cancellation of this 390 Agreement shall survive the Effective Date and continue in full force and effect regardless of whether this Agreement expires or terminates, or is canceled, surrendered or completed. ARTICLE X CONFIDENTIALITY 10.1 Confidentiality Obligations of Pepco. Pepco shall hold in confidence, unless compelled to disclose by judicial or administrative process or other provisions of law, all documents and information furnished by Generator in connection with this Agreement marked "Confidential" or "Proprietary." Except to the extent that such information or documents are (i) generally available to the public other than as a result of a disclosure by Pepco in breach of this Agreement, (ii) available to Pepco on a non-confidential basis prior to disclosure to Pepco by Generator, or (iii) available to Pepco on a non-confidential basis from a source other than Generator, provided that such source is not known, and by reasonable effort could not be known, by Pepco to be bound by a confidentiality agreement with Generator or otherwise prohibited from transmitting the information to Pepco by a contractual, legal or fiduciary obligation, Pepco shall not release or disclose such information to any other person, except to its employees, representatives or agents on a need-to-know basis, in connection with this Agreement who has not first been advised of the confidentiality provisions of this Section 10.1 and has agreed in writing to comply with such provisions. In no event shall such information be disclosed in violation of the requirements of FERC Orders 889 and 889-A, and any successor thereto. Pepco shall promptly notify Generator if it receives notice or otherwise concludes that the production of any information subject to this Section 10.1 is being sought under any provision of law and Pepco shall use reasonable efforts in cooperation with Generator to seek confidential treatment for such confidential information provided thereto. 10.2 Confidentiality Obligations of Generator. Generator shall hold in confidence, unless compelled to disclose by judicial or administrative process or other provisions of law, all documents and information furnished by Pepco in connection with this Agreement marked "Confidential" or "Proprietary." Except to the extent that such information or documents are (i) generally available to the public other than as a result of a disclosure by Generator in breach of this Agreement, (ii) available to Generator on a non-confidential basis prior to disclosure to Generator by Pepco, or (iii) available to Generator on a non-confidential basis from a source other than Pepco, provided that such source is not known, and by reasonable effort could not be known, by Generator to be bound by a confidentiality agreement with Pepco or otherwise prohibited from transmitting the information to Generator by a contractual, legal or fiduciary obligation, Generator shall not release or disclose such information to any other person, except to its employees, representatives or agents on a need-to-know basis, in connection with this Agreement who has not first been advised of the confidentiality provisions of this Section 10.2 and has agreed in writing to comply with such provisions. In no event shall such information be disclosed in violation of the requirements of FERC Orders 889 and 889-A, and any successor thereto. Generator shall promptly notify Pepco if it receives notice or otherwise concludes that the production of any information subject to this Section 10.2 is being sought under any provision of law and Generator shall use reasonable efforts in cooperation 391 with Pepco to seek confidential treatment for such confidential information provided thereto. 10.3 Remedies. The Parties agree that monetary damages would be inadequate to compensate a Party for the other Party's breach of its obligations under Section 10.1 or 10.2, above, as applicable. Each Party accordingly agrees, that the other Party shall be entitled to equitable relief, by way of injunction or otherwise, if a Party breaches or threatens to breach its obligations under Section 10.1 or 10.2 of this Agreement, as applicable, which equitable relief shall be granted without bond or proof of damages, and the receiving Party shall not plead in defense that there would be an adequate remedy at law. ARTICLE XI DISPUTE RESOLUTION 11.1 Disputes. A Party with a claim or dispute under this Agreement shall submit to the other Party a notification of such claim or dispute within sixty (60) days after the circumstances that gave rise to the claim or the question or issue in dispute. The notification shall be in writing and shall include a concise statement of the claim or the issue or question in dispute, a statement of the relevant facts and documentation to support the claim. In the event the Parties are unable, in good faith, to resolve their disagreement in a manner satisfactory to both Parties within thirty (30) days after receipt by a Party of a notification specifying the claim, issue or question in dispute, the Parties shall refer the dispute to their respective senior management. If, after using their good faith best efforts to resolve the dispute, senior management cannot resolve the dispute within thirty (30) days, the Parties shall utilize the arbitration procedures set forth below in Section 11.2 to resolve a dispute, provided that nothing herein or therein shall prohibit Pepco or Generator from at any time requesting from a court of competent jurisdiction a temporary restraining order, preliminary injunction, or other similar form of equitable relief to enforce performance of the provisions of this Agreement. 11.2 Arbitration. (a) Unless the Parties otherwise mutually agree in writing to another form of dispute resolution, such as dispute resolution under the PJM Agreement or the MAAC Agreement, any arbitration initiated under this Agreement shall be conducted before a single neutral arbitrator appointed by the Parties within thirty (30) days of receipt by respondent of the demand for arbitration. If the Parties are unable to agree on an arbitrator, such arbitration shall be appointed by the American Arbitration Association. Unless the Parties agree otherwise, the arbitrator shall be an attorney or retired judge with at least fifteen (15) years of experience, and shall not have any current or past substantial business or financial relationships with any Party to the arbitration. If possible, the arbitrator shall have experience in the electric utility industry. Unless otherwise agreed, the arbitration shall be conducted in accordance with the American Arbitration Association's Commercial Arbitration Rules, then in effect, in the District of Columbia. Any arbitration proceedings, decision or award rendered hereunder and the validity, effect and 392 interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act of the United States, 9 U.S.C. Section 1 et seq. (b) The arbitration shall, if possible, be concluded not later than six (6) months after the date that it is initiated. The arbitrator shall be authorized only to interpret and apply the provisions of this Agreement or any related agreements entered into under this Agreement and shall have no power to modify or change any of the above in any manner. The arbitrator shall have no authority to award punitive or multiple damages or any damages inconsistent with this Agreement. The arbitrator shall, within thirty (30) days of the conclusion of the hearing, unless such time is extended by agreement of the Parties, notify the Parties in writing of his or her decision, stating his or her reasons for such decision and separately listing his or her findings of fact and conclusions of law. The decision of the arbitrator rendered in such a proceeding shall be final and binding on the Parties. Judgment on the award may be entered upon it in any court having jurisdiction. 11.3 FERC Jurisdiction. Nothing in this Agreement shall preclude, or be construed to preclude, any Party from filing a petition or complaint with FERC with respect to any arbitrable claim over which FERC has jurisdiction. In such case, the other Party may request FERC to reject or to waive jurisdiction. If FERC rejects or waives jurisdiction with respect to all or a portion of the claim, the portion of the claim not so accepted by FERC shall be resolved through arbitration, as provided in this Agreement. To the extent that FERC asserts or accepts jurisdiction over the claim, the decision, finding of fact or order of FERC shall be final and binding, subject to judicial review under the Federal Power Act, and any arbitration proceedings that may have commenced with respect to the claim prior to the assertion or acceptance of jurisdiction by FERC shall be terminated. ARTICLE XII MISCELLANEOUS 12.1 Amendment and Modification; Extension; Waiver. This Agreement may be amended, modified or supplemented only by an instrument in writing signed on behalf of each of the Parties. Either Party may (i) extend the time for the performance of any of the obligations or other acts of the other Party, (ii) waive any inaccuracies in the representations and warranties of the other Party contained in this Agreement or (iii) waive compliance by the other Party with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a Party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such Party. The failure of a Party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. 12.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given (as of the time of delivery or, in the case of a telecopied communication, of confirmation) if delivered personally, telecopied (which is confirmed) or sent by overnight courier (providing proof of delivery) to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice): 393 if to Pepco, to: Potomac Electric Power Company 1900 Pennsylvania Avenue, N.W. Washington, D.C. 20068 Telecopier: (202) 261-7889 Attention: William T. Torgerson, General Counsel with a copy to: Dickstein Shapiro Morin & Oshinsky LLP 2101 L Street, NW Washington, DC 20037 Telecopier: (202) 887-0689 Attention: Kenneth M. Simon, Esq. if to Generator, to: Southern Energy, Inc. 900 Ashwood Parkway Suite 500 Atlanta, Georgia 30338-4780 Telecopier: (770) 821-6575 Attention: with a copy to: Troutman Sanders LLP 1300 I Street, NW Suite 300 East Washington, DC 20005 Telecopier: (202) 274-2994 Attention: Benjamin Israel, Esq. 12.3 No Third Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to confer on any other person except the Parties hereto any rights, interests, obligations or remedies hereunder. 12.4 Independent Contractors. The Parties acknowledge and agree that: (i) they are independent contractors, (ii) neither Party shall have any right, power or authority to enter into any agreement or commitment, act on behalf of, or otherwise bind the other 394 Party in any way, and (iii) nothing contained in this Agreement shall create any relationship between Pepco and Generator other than that of independent contractors. 12.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the District of Columbia (regardless of the laws that might otherwise govern under applicable principles of conflicts of law). 12.6 Jurisdiction and Enforcement. Except as provided in Article XI, each of the Parties irrevocably submits to the exclusive jurisdiction of (i) the Superior Court of the District of Columbia and (ii) the United States District Court for the District of Columbia, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Except as provided in Article XI, each of the Parties agrees to commence any action, suit or proceeding relating hereto either in the United States District Court for the District of Columbia or, if such suit, action or proceeding may not be brought in such court for jurisdictional reasons, in the Superior Court for the District of Columbia. Except as provided in Article XI, each of the Parties further agrees that service of process, summons, notice or document by hand delivery or U.S. registered mail at the address specified for such Party in Section 12.2 (or such other address specified by such Party from time to time pursuant to Section 12.2) shall be effective service of process for any action, suit or proceeding brought against such Party in any such court. Except as provided in Article XI, each of the Parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the Superior Court of the District of Columbia and (ii) the United States District Court for the District of Columbia, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 12.7 Counterparts. This Agreement may be executed in two counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument. 12.8 Interpretation. When a reference is made in this Agreement to an Article or Section, such reference shall be to an Article or Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation" or equivalent words. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any agreement, instrument, statute, regulation, rule or order defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument, statute, regulation, rule or order as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes, 395 regulations, rules or orders) by succession of comparable successor statutes, regulations, rules or orders and references to all attachments thereto and instruments incorporated therein. References to a person are also to its permitted successors and assigns. Each Party acknowledges that it has been represented by counsel in connection with the review and execution of this Agreement, and, accordingly, there shall be no presumption that this Agreement or any provision hereof be construed against the Party that drafted this Agreement. 12.9 Entire Agreement. This Agreement, including the documents, certificates and instruments referred to herein and other contracts, agreements and instruments contemplated hereby, embody the entire agreement and understanding of the Parties in respect of the transactions contemplated by this Agreement. There are no restrictions, promises, representations, warranties, covenants or undertakings other than those expressly set forth or referred to herein or therein. This Agreement supersedes all prior agreements and understandings between the Parties with respect to the transactions contemplated by this Agreement. 12.10 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. 12.11 Conflicts. Except with respect to the indemnification, liability, default and remedies provisions contained herein or as otherwise expressly provided herein, in the event of any conflict or inconsistency between the terms of this Agreement and the terms of the Asset Sale Agreement, the terms of the Asset Sale Agreement shall prevail. 12.12 Further Assurances. The Parties hereto agree to execute and deliver promptly, at the expense of the Party requesting such action, any and all other and further instruments, documents and information which may be reasonably requested in order to effectuate the transactions contemplated hereby. Each Party agrees to cooperate with, assist and accommodate all reasonable requests made by the other Party in respect of any regulatory approval necessary for, or any regulatory proceeding relating to, the execution, delivery or performance of this Agreement. Each Party further agrees to comply in all material respects with all Laws of Governmental Authorities relating to this Agreement and the consummation of the transactions contemplated hereby. [THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK] 396 IN WITNESS WHEREOF, Pepco and Generator have caused this Local Area Support Agreement to be signed by their respective duly authorized representatives on the date first above written. POTOMAC ELECTRIC POWER COMPANY By: -------------------------------- Name: Title: [GENERATOR] By: -------------------------------- Name: Title: 397 APPENDIX A As used in this Agreement, the following terms have the meanings set forth below: (a) "Abnormal Conditions" means Abnormal Conditions as described in Pepco Transmission Procedure No. 28. (b) "Abnormal Condition Violation" means any failure by Generator during Abnormal Conditions to comply during any hour with the operation and dispatch orders specified by PJM Interconnection LLC or Pepco for that hour pursuant to Section 3.2(a); provided, however, Generator shall not have committed an Abnormal Condition Violation if the Actual Output is no more than five megawatts (5 MW) greater than or five megawatts (5 MW) less than the Target Output based on instantaneous meter readings. (c) "Actual Output" means the actual output supplied in any hour during Abnormal Conditions by Generator from the Facility pursuant to the operation and dispatch orders of PJM Interconnection LLC or Pepco in accordance with Section 3.2(a). (d) "Affiliate" shall have the meaning set forth in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended. (e) "Ancillary Services" means all services or requirements necessary to support the transmission of capacity and Energy from resources to loads while maintaining reliable operation of the System in accordance with Good Utility Practice. Ancillary Services includes, but is not limited to, scheduling, system control and dispatch, reactive supply and voltage control from generation sources, regulation and frequency response, energy imbalance, operating reserve, emergency energy, spinning reserve and supplemental reserve. (f) "Available" means, in relation to the Facility, that the Facility or any Unit thereof is capable, in real time, of producing Energy and Ancillary Services which will be delivered into the System. (g) "Closing" shall have the meaning set forth in the Asset Sale Agreement. (h) "Closing Date" means the date on which the Closing with respect to the Facility actually occurs. (i) "Effective Date" means the date upon which this Agreement becomes effective as determined pursuant to Section 2.1. (j) "Energy" means electrical energy. (k) "Event of Default" has the meaning set forth in Section 6.1. 398 (l) "Excess Output" means the amount, if any, by which the Actual Output exceeds the Target Output based on instantaneous meter readings. (m) "Facility" means the Potomac River Station electric generating facility, which consists of Units 1, 2, 3, 4 and 5 and associated generating facilities, located in Alexandria, Virginia. (n) "FERC" means the Federal Energy Regulatory Commission or its successor. (o) "Force Majeure" has the meaning set forth in Section 8.2. (p) "Generator Material Adverse Effect" has the meaning set forth in Section 5.2. (q) "Good Utility Practice" means any of the applicable practices, methods and acts: (i) required by FERC, NERC, MAAC, PJM Interconnection LLC, the PJM System Operator, or the successor of any of them, whether or not the Party whose conduct is at issue is a member thereof; (ii) required by applicable Law; (iii) required by the Pepco Interconnection Standards or the policies and standards of Pepco relating to emergency operations; (iv) otherwise engaged in or approved by a significant portion of the electric utility industry during the relevant time period; which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with applicable Law, good business practices, reliability, safety, and expedition. Good Utility Practice is not intended to be limited to the optimum practice, method, or act to the exclusion of all others, but rather to be acceptable practices, methods, or acts generally accepted in the region. (r) "Governmental Authority" means any court, administrative or regulatory agency or commission or other governmental entity or instrumentality, domestic, foreign or supranational or any department thereof. (s) "Independent System Operator" means an entity, other than Pepco or any affiliate or associate company, including any regional transmission operator, independent system operator, transco, or any other independent system administrator, that possess operational or planning control over the System. 399 (t) "Law" means any law, statute, treaty, code, rule, regulation, or order judgement or determination of an arbitrator, court or other Governmental Authority, or any franchise, license, lease, permit, certificate, authorization, qualification, easement, right of way, right or approval binding on a Party or any of its property. (u) "MAAC" means the Mid-Atlantic Area Council, a reliability council under Section 202 of the Federal Power Act established pursuant to the MAAC Agreement, dated August 1, 1994 (the "MAAC Agreement"), and any successor thereto. (v) "NERC" means the North American Electric Reliability Council and any successor entity thereto. (w) "Normal Conditions" means Normal Conditions as described in Pepco Transmission Procedure No. 28. (x) "Normal Condition Violation" means any failure by Generator to comply with Pepco Transmission Procedure No. 28 during Normal Conditions, any failure to have at least one (1) Unit at full rated capacity during Normal Conditions or both. (y) "PJM" means the Pennsylvania New Jersey-Maryland interconnected power pool operated under the PJM Agreement and any successor thereto including any regional transmission operator, independent system operator, transco, or any other independent system administrator that possesses operational or planning control over the System. (z) "PJM Agreement" means the Amended and Restated Operating Agreement of the PJM Interconnection LLC, dated as of June 2, 1997. (aa) "PJM Control Area" means the control area recognized by NERC as the PJM Control Area. (bb) "PJM Interconnection LLC" means the independent system operator of the PJM Control Area pursuant to the PJM Agreement and the PJM Tariff. (cc) "PJM System Operator" means the PJM Interconnection LLC energy control center staff responsible for central dispatch as provided in the PJM Agreement. (dd) "PJM Tariff" means the PJM Open Access Transmission Tariff providing transmission service within the PJM Control Area. (ee) "Pepco Interconnection Standards" means Pepco's Interconnection and Parallel Operating Guidelines as amended from time to time. A copy of the existing Pepco Interconnection Standards is attached hereto as Exhibit A. (ff) "Pepco Interconnection Procedure No. 28" means Pepco's Transmission System Operations Procedure No. 28, and any modification or successor procedure accepted by PJM. A copy of existing Pepco Transmission Procedure No. 28 is attached. 400 hereto as Exhibit B. The Parties shall revise Exhibit B from time to time to conform to any changes made to Pepco Transmission Procedure No. 28. (gg) "Pepco Transmission Procedure No. 29" means Pepco's Transmission System Operations Procedure No. 29, and any modification or successor procedure accepted by PJM. A copy of the existing Pepco Transmission Procedure No. 29 is attached hereto as Exhibit C. The Parties shall revise Exhibit C from time to time to conform to any changes made to Pepco Transmission Procedure No. 29. (hh) "Pepco Material Adverse Effect" has the meaning set forth in Section 5.1. (ii) "Person" means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, or governmental entity or any department or agency thereof. (jj) "Services" means Generator's operation of the Facility or any Unit thereof in accordance with Section 3.2(a). (kk) "Shed Load" means the process of deliberately removing firm load from the System, whether manually, automatically or through requiring location-specific load reductions, in accordance with Good Utility Practice to maintain the integrity of the System. (ll) "Substitute Resources" has the meaning set forth in Section 4.1 (mm) "System" means Pepco's electric system in the electrical vicinity of the Facility. (nn) "Target Output" means the output required to be supplied in any hour during Abnormal Conditions by Generator from the Facility pursuant to the operation and dispatch orders of PJM Interconnection LLC or Pepco in accordance with Sections 3.2(a). (oo) "Term" has the meaning set forth in Section 2.1. (pp) "Termination Fee" has the meaning set forth in Sections 4.4. (qq) "Termination Notice" has the meaning set forth in Section 4.2. (rr) "Transaction Day" means any day during which the Facility is required to, and in fact does, provide Services. (ss) "Unit" or "Units" means one or more individual electricity generating unit or units constituting a part of the Facility. 401 EXHIBIT G OPERATION AND MAINTENANCE AGREEMENT FOR BUZZARD POINT AND BENNING FACILITIES LOCATED IN WASHINGTON, D.C. By and Between POTOMAC ELECTRIC POWER COMPANY, As Owner And ________________________________, As Operator Dated as of _________, 2000 402 EXHIBIT G TABLE OF CONTENTS ARTICLE 1 DEFINITIONS 1 ARTICLE 2 SCOPE OF SERVICES 1 ARTICLE 3 PEPCO RESPONSIBILITIES 8 ARTICLE 4 BUDGET 9 ARTICLE 5 OPERATOR'S FEE, INVOICING AND PAYMENTS 11 ARTICLE 6 FACILITIES CUSTODY 12 ARTICLE 7 TERM AND TERMINATION 14 ARTICLE 8 REPRESENTATIONS AND WARRANTIES OF PEPCO 16 ARTICLE 9 REPRESENTATIONS AND WARRANTIES OF OPERATOR 18 ARTICLE 10 COVENANTS OF THE PARTIES 20 ARTICLE 11 EMPLOYEE MATTERS 21 ARTICLE 12 INDEMNIFICATION 21 ARTICLE 13 FORCE MAJEURE 23 ARTICLE 14 CONFIDENTIALITY 24 ARTICLE 15 DISPUTE RESOLUTION 25 ARTICLE 16 MISCELLANEOUS PROVISIONS 26
APPENDICES AND EXHIBITS Appendix A Definitions Exhibit I Facility Sites Exhibit II Budget for First Contract Year Exhibit III Employee Matters Exhibit IV Pepco Interconnection Standards
403 EXHIBIT G OPERATION AND MAINTENANCE AGREEMENT THIS OPERATION AND MAINTENANCE AGREEMENT (including the Appendices, Exhibits and Schedules hereto, this "Agreement"), dated as of ____________, 2000 (the "Effective Date"), by and between Potomac Electric Power Company, a District of Columbia and Virginia corporation ("Pepco"), and ________________, a _____________ ("Operator") (individually, a "Party"; collectively, the "Parties"). WHEREAS, Pepco is the owner of two electric generation facilities located in Washington, DC, namely the Buzzard Point Generating Station and the Benning Generation Station (collectively, the "Facilities"); WHEREAS, Pepco is desirous of having Operator operate and maintain the Facilities, and Operator is willing to operate and maintain the Facilities, upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements hereinafter set forth, and intending to be legally bound hereby, the Parties agree as follows: ARTICLE 1 DEFINITIONS Capitalized terms used in this Agreement shall have the respective meanings set forth in Appendix A hereto. ARTICLE 2 SCOPE OF SERVICES 2.1 Applicable Principles. 2.1.1 Operator shall operate and maintain the Facilities for the Term of this Agreement. Operator shall perform all Services specified herein, and all other Services that are reasonably necessary to support operation of the Facilities, it being understood that a principal purpose of this Agreement is to relieve Pepco of the necessity of engaging or supplying any labor, service or material to support operation of the Facilities unless the labor, service or material is specifically itemized in this Agreement as being furnished by Pepco to Operator. Pepco shall retain responsibility for the disposition and sale of the entire capacity and energy output of the Facilities. 404 EXHIBIT G 2.1.2 Operator shall perform the Services in accordance with Good Utility Practices and pursuant to all applicable PJM Requirements and dispatch orders. 2.2 Operator's Performance. Operator's responsibilities and obligations to Pepco shall include the following, from and after the Turnover Date until the Termination Date: 2.2.1 Operate and maintain the Facilities. 2.2.2 Respond to and operate the Facilities as directed by Pepco and in a manner consistent with this Agreement. 2.2.3 Be responsible for all costs and Taxes associated with operating and maintaining the Facilities; with the exception of capital expenditures to be funded by Pepco pursuant to Section 4.2 below and Income Taxes and property taxes imposed on Pepco. 2.2.4 Arrange for the procurement, delivery, storage and redelivery of all material, equipment, chemicals and other consumables and supplies associated with operating and maintaining the Facilities, including fuel, water, sewer, electricity (except to the extent provided by Pepco pursuant to Section 3.1) and telecommunications service. 2.2.5 Retain all operating and maintenance records (whether in electronic form or otherwise) relating to the Facilities. Operator shall provide to Pepco, upon reasonable request, copies of any records or other information in Operator's possession relating to the Facilities and required by Pepco in order to comply with Applicable Law. 2.2.6 Implement and maintain a program of planned maintenance for the Facilities. 2.2.7 Develop, implement and enforce a preventative maintenance program that will ensure that the Facilities (a) experience no more than a 20% derating of either Facility (except for maintenance) so as to support requirements for local area reliability by demonstration of generation during the semi-annual PJM Net Capability Test, and (b) can meet the performance requirements on the Termination Date (as provided in Section 6.2 below). 2.2.8 Perform all routine maintenance. 2.2.9 Coordinate arrangements with Pepco for maintenance outages, planned and unplanned outages including outages requiring major capital expenses by Pepco. EXHIBIT G 405 2.2.10 Maintain an effective work force at the Facilities, assuming and discharging as appropriate any outstanding responsibilities of Pepco under any collective bargaining agreements as set forth in Exhibit III. 2.2.11 Conduct appropriate inspections and make the Facilities available at reasonable times for inspections by Pepco and others designated by